Healthcare Fraud and Abuse Review 2013

Healthcare Fraud and Abuse Review

2013

1.A Look BAck…A Look AheAd

3. Noteworthy SettLemeNtS

5. FALSe cLAimS Act UpdAte

17. cASeS to wAtch

19. StArk LAw/ANti-kickBAck StAtUte

22. medicAre coNtrActorS ANd reLAted LitigAtioN

25. phArmAceUticAL ANd medicAL device deveLopmeNtS

26. AppeNdix A – 2013 NotABLe SettLemeNtS

41. AppeNdix B – iNterveNed cASeS (prior to SettLemeNt)

45. ABoUt BASS, Berry & SimS pLc

A Look BAck…A Look AheAd

During the fiscal year ending September 30, 2013, the federal government

recovered nearly $3.8 billion in settlements and judgments from civil cases

involving fraud against the government; $2.9 billion of this recovery stemmed

from lawsuits filed under the qui tam provisions of the federal False Claims

Act (“FCA”), and nearly $2.6 billion of this recovery stemmed from matters

involving healthcare fraud.1 Among the largest of its FCA recoveries, the

United States secured a $237 million judgment against Tuomey Health Care

based on alleged violations of the Stark Law.

Recoveries in qui tam cases during fiscal year 2013 totaled $2. 9 billion, with

whistleblowers recovering $388 million.

The number of qui tam lawsuits filed by whistleblowers likewise continues to

grow at an extraordinary rate.2 During the previous five years, the number of

In FY 2013, the United States recovered

$3.8 billion in fraud-related civil settlements and

judgments.

1. See http://www.justice.gov/opa/pr/2013/December/13-civ-1352.html.2. Id.3. United States Department of Justice, Fraud Statistics Overview, Dec. 23, 2013, available at www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf. 4. See https://oig.hhs.gov/reports-and-publications/archives/semiannual/2013/SAR-F13-OS.pdf. 5. See http://www.justice.gov/opa/pr/2013/May/13-crm-553.html.

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02009 2010 2011 2012 2013

CIVIL FRAUD RECOVERIES / FY 2009–2013 ($ BILLIONS)

$2.5

$3.1 $3.1

$4.9

$3.8

new FCA lawsuits filed by whistleblowers has nearly doubled, with more than 750

new suits filed in FY 2013. For their part, whistleblowers recovered $388 million

last year as part of their share of qui tam settlements and judgments under

the FCA.3

Equally impressive results have been secured by federal and state

governments in pursuit of criminal enforcement concerning healthcare fraud

and abuse laws. DOJ again secured a number of high-profile convictions and

pleas in healthcare fraud matters against providers. The Medicare Fraud

Strike Force filed charges against 274 individuals or entities, initiated 251

criminal actions, and secured $333 million in investigative receivables.4 In

May 2013, the Strike Force initiated a nationwide takedown in eight cities,

which resulted in charges against 89 individuals, including doctors, nurses,

and other licensed medical professionals, for their alleged participation in

Medicare fraud schemes involving $223 million in false billings.5 The Strike

Force also scored significant results concerning home health providers,

durable medical equipment, and individual physicians, among others.

For its part, the Office of the Inspector General for the U.S. Department

of Health and Human Services (“HHS-OIG”) reported the exclusion of

The previous year saw federal and state regulators continue the trend of increased enforcement concerning healthcare fraud and abuse.

COMPARISON OF RECOVERIES (2013) HHS AS VICTIM AGENCY V. OTHER AGENCIES

HHS as Victim Agency

All Others

$1.1 Billion

$2.7 Billion

3,214 individuals and entities from participation in the federal healthcare

programs, 960 criminal actions against individuals and entities that engaged

in crimes against HHS programs, and 472 civil actions, which included claims

and unjust enrichment lawsuits filed in federal court, civil monetary penalty

settlements, and administrative recoveries stemming from provider self-

disclosures.6

In addition to the civil, criminal, and administrative enforcement results,

courts grappled with a number of considerable issues arising under the

FCA. Courts continue to examine public disclosure bar issues, pleading

requirements, and damages under the FCA, among many other issues. There

also has been a sharp increase in the number of cases seeking to expand

FCA liability to Medicaid claims allegedly tainted by Stark Law violations – a

possible expansion of FCA liability that providers should watch very closely

in the coming year.

We hope this Healthcare Fraud and Abuse Review of 2013 will assist

healthcare providers in staying abreast of legal developments relevant to

their business and will offer insight as to what providers might see during the

coming year. Without question, the government will continue its emphasis

on enforcement and courts will consider an increasing number of complex

issues arising under the FCA in the coming year.

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6. See https://oig.hhs.gov/reports-and-publications/archives/semiannual/2013/SAR-F13-OS.pdf.

hoSpitALS ANd heALth SyStemS

As in years past, settlements involving FCA claims against hospitals and

hospital systems again focused on resolution of claims for improper billing

for one-day stays and short stays related to characterization of patient

status as inpatient, outpatient, or observation.8 In addition to such cases,

hospitals and hospital systems resolved several actions involving allegations

of medical necessity, particularly in the cardiovascular context, and several

settlements resolved claims based on allegations of unnecessary cardiac

stenting.9 Hospitals and hospital systems also continued to resolve cases

stemming from the government’s investigation into kyphoplasty treatment.10

There also was a significant increase in FCA settlements resolving Stark Law

and Anti-Kickback Statute allegations. These settlements typically involved

allegations of improper payments to physicians for consulting services, lease

arrangements, bonus compensation, and teaching agreements.11

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COMPARISON OF TOTAL RECOVERIES: INTERVENED V. DECLINED CASES SETTLEMENTS AND JUDGMENTS

Year Intervened Cases Declined Cases

2009 $1.96 billion $33.78 million





Noteworthy SettLemeNtS

Nearly 70% of the government’s recovery in civil fraud matters last year

stemmed from matters involving healthcare fraud.

Despite the federal budget sequester and government shutdown in 2013,

the previous year continued the trend in large healthcare fraud-related FCA

settlements arising from qui tam litigation, federal and state investigations,

and self-disclosures. Appendix A to our Healthcare Fraud and Abuse Review

contains a detailed breakdown of the noteworthy settlements referenced in

the trends discussed below.

The critical point in the life of a federal healthcare fraud investigation

stemming from the filing of a qui tam lawsuit typically centers on the

government’s decision to intervene in a particular case. As anticipated,

settlements and recoveries in intervened cases were vastly greater when

the government intervened than in cases in which the government declined

intervention. In settlements and judgments arising from intervened cases,

the government collected more than $2.87 billion in FY 2013 compared with

only $109 million in cases in which the government declined intervention.7

Because the vast majority of FCA settlements and recoveries result from

lawsuits in which the U.S. has intervened, Appendix B contains a detailed

breakdown of noteworthy FCA actions from the past year in which the federal

government has intervened. Providers’ increased willingness to litigate FCA

lawsuits in which the government has intervened suggests these cases

should be closely watched as they move forward.

7. United States Department of Justice, Fraud Statistics Overview, Dec. 23, 2013, available at www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf. 8. See Appendix A; see, e.g., http://www.justice.gov/opa/pr/2013/February/13-civ-169.html; http://www.justice.gov/opa/pr/2013/August/13-civ-936.html. 9. See Appendix A; see, e.g., http://www.justice.gov/opa/pr/2013/January/13-civ-023.html. 10. See Appendix A; see, e.g., http://www.justice.gov/usao/mie/news/2013/2013_7_10_jpatel_HCF.html. 11. See Appendix A; see, e.g., http://www.justice.gov/opa/pr/2013/April/13-civ-378.html.

Continuing the trend of the last several years, the overwhelming majority of recoveries in civil actions alleging fraud against the government involve allegations of healthcare fraud against the federal healthcare programs.

The government also showed an increased focus on matters involving

inadequate supervision of residents, nurses, and physician assistants.12 We

expect this topic to continue to be of interest to the government and relators.

phySiciAN SettLemeNtS

Physician groups and individual physicians witnessed increased enforcement

on an unprecedented level in 2013. Enforcement in the physician context often

centered on physician billing, particularly allegations related to upcoding.13

In keeping with this recent trend, in December 2013, the U.S. announced that

it intervened in an action against the largest hospitalist group in the country

related to allegations the group engaged in upcoding by seeking payment

for higher and more expensive levels of medical service than were actually

performed.14

In addition to physician groups, there was also increased focus on individual

physicians. In 2013, DOJ settled with an individual physician for $26.1 million

to resolve allegations regarding Anti-Kickback Statute violations related

to a physician’s relationship with a pathology laboratory.15 The settlement

represents one of the largest settlements in history between DOJ and an

individual.

heALth pLANS

We continue to see limited FCA activity concerning health plans. Last year,

only one notable settlement with a health plan was reached, which concerned

allegations that the plan artificially inflated patient risk adjustment scores to

retain higher payments.16

LoNg-term cAre

Hospice and home health companies remained a frequent target of federal

investigations and qui tam litigation in 2013. As in previous years, hospice

settlements primarily stemmed from allegations that hospice providers billed

federal healthcare programs for medically unnecessary care with respect to

ineligible patients.17 In most instances, patients allegedly lacked the requisite

prognosis of six months or fewer to live.

Several FCA settlements involving long-term care providers resolved

allegations of inadequate care or worthless services and unnecessary

therapy services.18

phArmAceUticALS ANd medicAL device compANieS

There were several trends in pharmaceutical-related settlements last year.

Although not as many settlements reached the level of the multi-billion

dollar settlements witnessed in previous years, the pharmaceutical off-label

marketing settlement trend continued with several large settlements.

Settlements included off-label marketing allegations19 and Anti-Kickback

Statute violations through the inducement of providers to switch government

beneficiaries to a competitor drug, free continuing medical education courses

and consultant meetings, and rebates and free equipment in exchange for

purchasing medical devices.20 Trends in 2013 also included settlements related

to adulterated drugs, lack of medical necessity for devices, and encouraging

physicians to submit claims with incorrect diagnosis and procedure codes.21

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12. See Appendix A; see, e.g., http://www.releasewire.com/Associated-Press/99911.pdf; http://www.justice.gov/usao/hi/news/1308wgh.html. 13. See http://www.justice.gov/opa/pr/2013/July/13-civ-758.html. Other recent results include U.S. v. Malik, No. 1:12-cv-01234 (D.D.C.) (July 30, 2013), in which a FCA judgment was entered against a Washington, D.C.-based physician for submitting false nuclear cardiology claims by double billing for multi-day nuclear stress test studies. 14. See http://www.justice.gov/opa/pr/2013/December/13-civ-1294.html. 15. See http://www.justice.gov/opa/pr/2013/February/13-civ-183.html. 16. See Appendix A; http://www.justice.gov/usao/cac/Pressroom/2012/112.html. 17. See Appendix A; see, e.g., http://www.justice.gov/opa/pr/2013/March/13-civ-326.html. 18. See Appendix A; see, e.g., http://www.justice.gov/usao/gan/press/2013/01-02-13.html. http://www.justice.gov/usao/tne/news/2013/March/030813%20Grace%20Healthcare%20Settlement.html. 19. http://www.justice.gov/opa/pr/2013/November/13-ag-1170.html. 20. See Appendix A; see, e.g., http://www.justice.gov/opa/pr/2013/May/13-civ-547.html. 21. See Appendix A; see, e.g., http://www.justice.gov/opa/pr/2013/July/13-civ-755.html.

bar in any given case. Some courts have held that the version of the public

disclosure bar that existed when the FCA action was filed should apply.22

Other courts have applied the version of the statute that was in effect when

the alleged misconduct occurred.23 At least one court has recognized the

rationale of both approaches and yet noted that the version of the statute

that is applied may not be outcome determinative of the public disclosure

analysis.24

The version of the statute applied by a court can directly affect the outcome

of a public disclosure bar argument, as well as when a court takes up that

argument, as PPACA removed the jurisdictional language from the public

disclosure bar.25 Not surprisingly, courts are split as to whether the public

disclosure bar remains jurisdictional in nature after PPACA’s amendments.26

If a court finds that the public disclosure bar no longer is jurisdictional after

the PPACA, it may refuse to consider evidence outside the pleadings when

ruling on a public disclosure argument and such a decision may impact

whether the relator bears the burden of proof as to whether the public

disclosure bar applies.27

when Are disclosures Sufficient to Bar FcA Allegations?

In a number of recent decisions favorable to providers, courts have been

hesitant to apply an unduly restrictive interpretation of the public disclosure

bar and have refused to require complete identity between the public

disclosures and the FCA allegations. Rather, courts have focused on the

22. See, e.g., U.S. ex rel. Newell v. City of St. Paul, Minn., 728 F.3d 791, 794-95 (8th Cir. 2013); U.S. ex rel. Chen v. EMSL Analytical, Inc., 2013 U.S. Dist. LEXIS 117030, *22 (S.D.N.Y. Aug. 16, 2013); U.S. ex rel. Osheroff v. Healthspring, Inc., 938 F.Supp. 2d 724, 732 (M.D. Tenn. 2013); U.S. ex rel. Oliver v. Philip Morris USA Inc., 2013 U.S. Dist. LEXIS 83087, at *10-11 (D.D.C. June 13, 2013). 23. See, e.g., Leveski v. ITT Educ. Servs., Inc., 719 F.3d 818, 828 (7th Cir. 2013); U.S. ex rel. Radcliffe v. Purdue Pharma L.P., 2013 U.S. App. LEXIS 24708, *13-24 (4th Cir. Dec. 12, 2013); U.S. ex rel. Carter v. Halliburton Co., 2013 U.S. Dist. LEXIS 135087, *13-14 (E.D. Va. Sept. 19, 2013); U.S. ex rel. Stratienko v. Chattanooga-Hamilton Cnty. Hosp. Auth., 2013 U.S. Dist. LEXIS 105584, *21-22 (E.D. Tenn. July 29, 2013); U.S. ex rel. Lockey v. City of Dallas, Tex., 2013 U.S. Dist. LEXIS 9358, *15 (N.D. Tex. Jan. 23, 2013). 24. See, e.g., U.S. ex rel. Whipple v. Chattanooga-Hamilton Cnty. Hosp. Auth., 2013 U.S. Dist. LEXIS 120615, *4-6 (E.D. Tenn. Aug. 26, 2013). 25. Compare 31 U.S.C. § 3730(e)(4) (2009) with 31 U.S.C. § 3730(e)(4) (2010). 26. Compare U.S. ex rel. Paulos v. Stryker Corp., 2013 U.S. Dist. LEXIS 82294, *11 (W.D. Mo. June 12, 2013), U.S. ex rel. Fox Rx, Inc. v. Omnicare, Inc., 2013 U.S. Dist. LEXIS 75696, *30 n.15 (N.D. Ga. May 17, 2013), Stratienko, 2013 U.S. Dist. LEXIS, *22-23 n. 6, with U.S. ex rel. Beauchamp v. Academi Training Ctr., Inc., 933 F. Supp. 2d 825, 838-39 (E.D. Va. 2013). 27. See, e.g., Chen, 2013 U.S. Dist. LEXIS 117030, *25-26.

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FALSe cLAimS Act UpdAte

These issues involved the public disclosure bar, the pleading standards

required by Rule 9(b), the pleading of falsity and materiality, and statute of

limitations. Courts also considered the scope of discovery and issues related

to the settlement of FCA actions. Perhaps most importantly, courts issued

decisions in which relators and the government sought to significantly

extend the limits of FCA liability.

the FcA’S pUBLic diScLoSUre BAr

The FCA’s public disclosure bar prevents a relator from filing a qui tam

complaint based on information previously disclosed to the public, thereby

discouraging parasitic lawsuits based on such information. Although case law,

including recent decisions by the Supreme Court, generally counsels in favor

of a broad interpretation of the public disclosure bar, Congress narrowed its

scope as a result of amendments to the FCA set forth in the Patient Protection

and Affordable Care Act (“PPACA”). Since PPACA, courts have considered

the appropriate parameters of the public disclosure bar, including whether to

apply the FCA’s public disclosure bar as amended by PPACA depending on

when the conduct and disclosures at issue occurred.

whether to Apply the public disclosure Bar as Amended by ppAcA

On March 23, 2010, President Obama signed PPACA into law, which, in part,

amended the FCA’s public disclosure bar. PPACA does not include an explicit

retroactivity provision, and courts have relied upon varying approaches to

determine whether to apply PPACA’s amendments to the public disclosure

Federal district and appellate courts continued to consider a wide range of legal issues arising under the FCA.

central question of whether the public disclosures were sufficient to put the

government on notice of the potential for fraud.

In U.S. ex rel. Stratienko v. Chattanooga-Hamilton County Hospital Authority*,

the defendant argued that the relator’s allegations were barred by public

disclosures previously made in the news media, in other litigation, and in

an FCA complaint that the government drafted against the defendant, but

never filed or served. The relator argued that such disclosures should not

bar her allegations because the disclosures occurred during a different time

period, involved different transactions, and involved some different parties

than were alleged in the qui tam complaint. The district court, however,

rejected that argument, noting that “[n]ot a single circuit has held that a

complete identity of allegations” is required and that the relator’s allegations

“substantially resemble[d] the allegations and transactions discussed in

the public disclosures.”28 The district court noted that “while some of the

parties to the arrangements may be different and the exact arrangements

and transactions at issue may not be the same, the allegations appear to

derive their very essence from matters that have already been raised” in

previous public disclosures.29 As such, the district court concluded that the

government was already on notice that the defendant had engaged in similar

activity, and the relator’s allegations were sufficiently “based upon” those

previous disclosures for the public disclosure bar to apply.

In U.S. ex rel. Osheroff v. HealthSpring, Inc.*, the relator alleged that the

defendants offered Medicare beneficiaries free food and transportation to

induce them to enroll in their health plan. The defendants argued that such

allegations had been previously publicly disclosed both through the news

media and through the defendants’ own websites. The district court agreed,

concluding that the public disclosures tracked the “[r]elator’s underlying

premise” and “essential theory of liability,” and, therefore, were sufficient to

place the government on notice about the possibility of the alleged fraud.30

U.S. ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority*

involved public disclosures derived from a government investigation and

audit. The district court rejected the relator’s argument that disclosures

to the government through the investigative and audit process were not

sufficiently “public” to bar the allegations. The district court held that the

prior audit and investigation included disclosure of both the true set of facts

(i.e. what the defendant should have billed the government) and a false set

of facts (i.e. what was actually billed to the government) for specific claims.31

Such disclosure was sufficient to put the government on notice of alleged

fraud and to trigger the application of the public disclosure bar.32

when is a relator an original Source?

PPACA also amended the definition of an original source under the FCA.

The amendments to the FCA, however, did not change the fact that the FCA

requires relators to possess knowledge and information that is somehow

separate and distinct from the publicly disclosed information to avoid the

reach of the public disclosure bar.

In addition to considering the public disclosure bar issues discussed above,

the district court in Whipple* also analyzed the question of whether the

relator was an original source under the FCA. With respect to the pre-

PPACA original source requirements, the district court concluded that the

relator did not possess the requisite “direct and independent knowledge”

because his knowledge was not firsthand, derived from the source without

interruption.33 The district court noted that the alleged misconduct occurred

before the relator worked for the defendant and that the relator had no

firsthand knowledge concerning the circumstances surrounding the alleged

submission of false claims or decisions made at the time of submitting the

claims. Because the relator’s knowledge was second hand and gained from

other sources, it was not “direct and independent” for purposes of the pre-

PPACA public disclosure bar.

With respect to the post-PPACA original source requirements, the relator

argued that he offered knowledge about the defendant’s culpable state

of mind that was independent of and materially added to the previously

disclosed facts. The district court rejected that argument, however, holding

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28. 2013 U.S. Dist. LEXIS 105584, at *40-41.29. Id. at *44.30. 938 F. Supp. 2d at 733-34.31. 2013 U.S. Dist. LEXIS 120615, at *15-16.32. Id.33. Id. at *22-24.

*Denotes matter handled by Bass, Berry & Sims attorneys

that “the scope of the prior [government] investigations offered ample

opportunities for others to determine whether scienter existed.”34

In Osheroff*, the district court likewise took up the relator’s original

source argument and held that the relator did not meet the post-PPACA

original source requirements. The relator argued that the previous public

disclosures did not reveal the true extent of the misconduct and that his qui

tam complaint revealed much more serious and widespread violations than

had been previously disclosed. Rejecting that argument, the district court

stated that the relator’s supposedly additional information was “a matter of

degree, and of little moment given that the Anti-Kickback Statute prohibits

knowingly offering remuneration” that is likely to influence an individual.35

The relevance of the relator’s additional information – that the defendant

was offering more remuneration than previously known – was “necessarily

dependent upon the fact that the [] services offered to Medicare enrollees,”

information that was previously disclosed.36 As such, the relator’s information

was “not necessary to alert the Government to fraud that otherwise would

have gone unnoticed,” and the relator was not an original source.37

deveLopmeNtS iN FcA pLeAdiNg StANdArdS

pleading with particularity under rule 9(b)

In numerous cases, federal courts examined the particularity of pleading

required by Rule 9(b) of the Federal Rules of Civil Procedure in the context

of FCA claims. Although courts generally agree that a relator must plead

the who, what, when, where, and how of the alleged fraud, the manner in

which courts applied this standard and the types of allegations considered

sufficient to satisfy Rule 9(b) varied greatly.

In U.S. ex rel. Ge v. Takeda Pharmaceutical Co. Ltd., the First Circuit rejected

a relator’s “attempts to satisfy the Rule 9(b) requirements with a per se rule

that if sufficient allegations of misconduct are made, it necessarily follows

that false claims and/or material false information were filed.”38 The First

Circuit explained that an FCA “complaint . . . must ‘sufficiently establish

that false claims were submitted for government payment’ as a result of

the defendant’s alleged misconduct.”39 Even if the complaint were to have

contained factual allegations sufficient to demonstrate fraudulent activity,

the First Circuit concluded that it failed to allege specific details of any actual

false claims resulting from that activity and, therefore, failed to satisfy Rule

9(b)’s pleading requirement.

The Fifth Circuit also interpreted Rule 9(b)’s pleading requirements strictly

in U.S. ex rel. Nunnally v. West Calcasieu Cameron Hospital, holding that

the relator had failed to plead fraud with particularity in numerous ways.

Although the relator’s FCA claims were based on alleged violations of the

Anti-Kickback Statute, the relator failed to plead with particularity the

contents of the alleged referral agreements, the identity of the physicians

involved in the alleged fraudulent scheme, any specific inducements provided

to such physicians, any specific improper referrals made by such physicians,

or any claims submitted by the defendant for services rendered pursuant to

an illegal referral.40 The Fifth Circuit also held that, to the extent the relator

brought claims under the FCA premised on presenting false claims or making

false records that were separate from the kickback allegations, those claims

also failed to pass muster under Rule 9(b). Clarifying a previous ruling in

which the Fifth Circuit had stated that “the contents of a false claim need not

always be presented” under certain circumstances, “[t]his does not absolve

[the relator] of the burden of otherwise sufficiently pleading the time, place,

or identity details of the traditional standard, in order to effectuate Rule

9(b)’s function of fair notice and protection from frivolous suits.”41 Because

the relator’s allegations were “entirely conclusory” and offered no “factual

information with sufficient indicia of reliability,” the allegations failed to

satisfy Rule 9(b).42

Allegations in other actions satisfied Rule 9(b). In U.S. ex rel. Osheroff v.

Tenet HealthCare Corp., the district court held that the relator’s amended

complaint sufficiently pleaded fraud with particularity after it had dismissed a

34. Id. at *25. 35. 938 F. Supp. 2d at 735. 36. Id. 37. Id. 38. 2013 U.S. App. LEXIS 24364, *19 (1st Cir. Dec. 6, 2013). 39. Id. at *17. 40. 519 Fed. App’x 890, 894-95 (5th Cir. 2013). 41. Id. at 895. 42. Id.

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previous iteration of the complaint for failure to satisfy Rule 9(b). The district

court held that the relator properly alleged violations of the Anti-Kickback

Statute and Stark Law by providing specific examples of how the defendant

underrepresented the size of the office space it leased to physicians, leased

office space to physicians at rates below fair market value, and offered non-

standard benefits to physician tenants as terms in the leases.43 With respect

to pleading inducement under the Anti-Kickback Statute, the district court

held that the relator provided “a host of particular facts from which one may

reasonably infer that [the defendant] offered below-market-rate leases to

induce [patient] referrals,” such as requiring non-referring physicians to pay

a higher rate than referring physicians and overstating the size of the leased

office space to non-referring physician tenants.44 Unlike with the relator’s

previous complaint, the district court held that these new, particularized

facts were sufficient to satisfy Rule 9(b)’s heightened pleading requirement.

developments concerning Falsity and knowledge

In the wake of an active 2012, courts likewise have continued to address

important FCA questions of falsity and knowledge. Perhaps chief among

these is the reach of the implied certification theory of liability. While

FCA allegations based on explicit false representations are comparably

straightforward, courts often struggle in evaluating legal issues concerning

FCA claims based on an implied certification. Jurisdictions remain split as

to whether the FCA is a focused, fraud-based statute, or a comprehensive

statute intended to remediate everything from alleged minor contractual

breaches to slight regulatory infractions.

In U.S. ex rel. Steury v. Cardinal Health, Inc., the Fifth Circuit considered how

far the FCA reaches beyond claims that directly contain false statements.45

In Steury, the relator alleged that by contracting with the U.S. Department of

Veterans Affairs for the sale of medical devices, Cardinal Health had implicitly

certified its compliance with the products’ warranty of merchantability.

Choosing to avoid ruling broadly and definitively on the “cognizability of

implied false certification claims,” the Fifth Circuit rejected the relator’s

novel merchantability theory and held that the “implied certification of

an implied contract provision that is an implied prerequisite to payment”

is not enough to satisfy Rule 9(b)’s heightened pleading requirements.46

Further, the Fifth Circuit concluded that the relator failed to demonstrate

that certification of compliance with those specific contractual provisions

regarding merchantability, whether express or implied, was a condition

without which the government would not have paid Cardinal Health: “[A]

ny such claim, (whether express or implied) must assert that a certification

was a ‘prerequisite’ to the payment sought.”47 A contrary conclusion was

reached by the Eighth Circuit in U.S. ex rel. Simpson v. Bayer Healthcare

(In re Baycol Prods. Litig.). There, the Eighth Circuit breathed new life into

a previously dismissed FCA claim where the relator alleged that Bayer had

submitted a claim to the U.S. Department of Defense for payment under a

contract that was induced through false or fraudulent statements.48

In U.S. ex. rel. Armfield v. Gills, the district court considered whether a party’s

reliance on the advice of a consultant in altering its billing practices can

sufficiently shield it from FCA liability.49 While the district court acknowledged

that good faith reliance on advice of a healthcare consultant may refute a

claim that the defendants acted with knowledge, the court found that the

defendants must show that they had disclosed all material facts and that

they had changed their behavior in accordance with the consultant’s advice.50

The record was not entirely clear on these points, and the district court held

that there was a sufficient dispute as to the defendants’ knowledge to justify

denial of summary judgment.

Although not involving a healthcare provider, the district court’s opinion

in United States v. Science Applications International Corporation (SAIC)

provides useful guidance regarding whether a court might impute knowledge

to a corporation if its employees were aware or should have been aware of

the alleged fraud.51 The district court affirmed the requirement that a single

employee must be aware of the behavior and its fraudulent nature to satisfy

the knowledge requirement. That holding specifically rejected the “collective

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43. 2013 U.S. Dist. LEXIS 44235, at *21-24. 44. Id. at *29-30. 45. 735 F.3d 202 (5th Cir. 2013) (per curiam). 46. Id. 47. Id. 48. 732 F.3d 869 (8th Cir. 2013). 49. 2013 US Dist. LEXIS 12475 (M.D. Fla. Jan. 30, 2013). 50. Id. at *38-39. 51. 2013 US Dist. LEXIS 102185 (D.D.C. Jul. 22, 2013).

knowledge requirement,” which allows for a claim to succeed when one

employee is aware of the behavior and another is aware that the behavior

is fraudulent.52 The district court refused to piece together “innocent”

knowledge to create the necessary intent.53

In United States v. King-Vassel, the Seventh Circuit considered the question

of whether an expert witness was necessary to prove knowledge when the

claims submission process would be difficult for a lay person to understand.54

Reversing the district court’s decision, the Seventh Circuit held that the

failure to identify an expert witness did not mean that a party’s evidence

was insufficient to establish knowledge.55 Although the Seventh Circuit

acknowledged the complicated nature of Medicaid claims processing, it

nonetheless held that a plaintiff could establish that the defendant had

sufficient awareness of submission of fraudulent claims absent expert proof.56

when Are False Statements material?

In order for a claim to be “false,” – and to trigger FCA liability – it must be

material to the government’s decision to pay. In what is a positive development

for providers, an increasing number of courts strictly construe this requirement.

In doing so, courts have held that violations of conditions of participation (as

opposed to conditions of payment) typically are not material to the government’s

decision to pay claims for reimbursement, and therefore, cannot provide a basis

for pleading an FCA violation. Nonetheless, other courts have been less eager

to categorically apply this bright-line requirement, and instead have focused

on the facts of a given case to determine whether the materiality requirement

has been satisfied. In the previous year, courts continued to consider questions

of materiality and, in several important decisions very favorable to healthcare

providers, uniformly have held that violations of regulatory requirements not

tied to a condition of payment are insufficient to state a claim under the FCA.

In U.S. ex rel. Hobbs v. Medquest Assocs.*, the Sixth Circuit imposed a strict

“condition of payment” requirement as a prerequisite to FCA liability.57 In

Hobbs, the relator and, later, the government alleged that an operator of

diagnostic testing facilities violated the FCA by: (1) allowing unapproved

physicians to supervise contrast procedures, and (2) submitting a claim

using a former physician-owner’s billing number rather than enrolling as an

Independent Diagnostic Testing Facility (“IDTF”).58 Finding neither allegation

to involve a violation of a condition of payment, the Sixth Circuit reversed

the district court’s $11.1 million judgment in favor of the government. and

reaffirmed that violations of conditions of participation are immaterial to

the government’s decision to pay claims for reimbursement.59 Significantly,

the Sixth Circuit was clear that the FCA is not a tool to “police technical

compliance with complex federal regulations”60 and that the appropriate

remedy for mere regulatory noncompliance is administrative sanctions, not

the “extraordinary remedies”61 of the FCA.

In another case considering IDTF enrollment issues, U.S. ex rel. Ortloano

v. Amin Radiology, the district court considered whether enrollment of an

imaging center as a physician practice, rather than as an IDTF, rendered all

claims submitted to Medicare false.62 Adopting the Sixth Circuit’s approach

most recently articulated in Hobbs, the district court reasoned that because

[T]he FCA does not impose liability for

providers’ failure to anticipate needs of

the [Medicare] program that have not been

promulgated in regulations conditioning

payment on compliance, in addition to providers’

obligations to navigate the already-complicated

scheme of regulations.

–U.S. ex rel. Hobbs v. Medquest Assocs.

52. Id. at *26. 53. Id. at *27. 54. 2013 US App. LEXIS 17989 (7th Cir. Aug. 28, 2013). 55. Id. at *11. 56. Id. at *14-15. 57. 711 F.3d 707 (6th Cir. 2013). 58. Id. at 709. 59. Id. at 716. 60. Id. at 717 (quotations omitted). 61. Id. at 713. 62. 2013 U.S. Dist. LEXIS 143206 (M.D. Fla. Oct. 3, 2013).

| 9


the relator could not point to any Medicare regulation that conditioned

payment on proper classification of the imaging center – or any regulation

that was at all violated – improper enrollment did not give rise to material

falsity, as is required as a condition precedent for FCA liability.63

The Eighth Circuit also reaffirmed its view that allegations of regulatory

noncompliance are insufficient to state a claim under the FCA.64 In U.S. ex

rel. Ketroser v. Mayo Foundation, the relators argued that Mayo fraudulently

billed Medicare by preparing and creating initial tissue sample slides but

not preparing corresponding written reports.65 Reasoning that “the FCA

does not encompass those instances of regulatory noncompliance that are

irrelevant to the government’s disbursement decisions,” the Eighth Circuit

held that relators had failed to plead materiality.66 In requiring that the

alleged violations be tied to payment decisions, the Eighth Circuit held that

“[t]he False Claims Act may not properly be used to impose an onerous and

costly burden on the healthcare system without plausible evidence that

Medicare would consider such redundant reports to be a material condition

of payment.”67

FcA StAtUte oF LimitAtioNS

After lying dormant for more than 40 years, a little-known and little-used

World War II-era criminal code provision is threatening to upend the FCA’s

six-year statute of limitations and expose providers to open-ended and

extensive liability for otherwise stale claims.

The Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287,

provides that “[w]hen the United States is at war or Congress has enacted a

specific authorization for the use of the Armed Forces . . . the running of the

statute of limitations applicable to any offense (1) involving fraud or attempted

fraud against the United States . . . shall be suspended until 5 years after the

termination of hostilities as proclaimed by Presidential proclamation, with

notice to Congress, or by a concurrent resolution of Congress.”

In October 2008, Congress amended the WSLA, significantly extending

its scope to include specific authorizations by Congress for the use of the

Armed Forces.68 With relators and the government recently arguing for the

WSLA’s applicability in FCA cases, a jurisdictional split has arisen in the case

law. The diverging interpretations on the reach of the law continued in 2013,

and the U.S. Supreme Court ultimately may weigh in on this issue.

Of particular note is the Fourth Circuit’s opinion in U.S. ex rel. Carter v. Halliburton

Co.69 In Carter, the Fourth Circuit overturned a district court opinion finding the

pre-amendment WSLA inapplicable in a relator-initiated, non-intervened FCA

case. The Fourth Circuit held that the WSLA applies to: (1) both criminal and civil

actions; (2) actions where the U.S. is not a party; and (3) relator-initiated claims.

Because the Fourth Circuit determined that the U.S. has been “at war” with Iraq

since October 11, 2002, the Fourth Circuit concluded that the WSLA tolled the

limitations period for the relator’s FCA claims regarding fraudulent billing for

services provided to military forces in Iraq – claims which otherwise would have

been barred by the FCA’s six-year statute of limitations.

Unfortunately for healthcare providers facing qui tam litigation, certain

district courts have expanded the WSLA’s reach beyond military contracting

and into the healthcare and financial services industries. In U.S. ex rel.

Paulos v. Stryker Corp., the district court held that the WSLA as amended

does not apply strictly to “war frauds.” As a result, the FCA claims in the non-

intervened qui tam, which were premised on allegations of medical device

marketing fraud, were tolled due to the congressional authorization of the

use of force for Afghanistan in September 2011.70

In United States v. Wells Fargo Bank, N.A., an FCA action brought directly by

the U.S. involving allegations of misconduct in originating and underwriting

government-insured home mortgage loans, the district court explained

that, in applying the WSLA, “it makes no difference that the fraud in this

case was . . . unrelated to the Iraqi or Afghani conflicts” as “[t]he WSLA

| 10

63. Id. at 20-21. 64. 729 F.3d 825 (8th Cir. 2013). 65. Id. at 826. 66. Id. at 829. 67. Id. at 832. 68. The WSLA was amended by the Wartime Enforcement of Fraud Act of 2008. 69. 710 F.3d 171 (4th Cir. 2013). 70. 2013 U.S. Dist. LEXIS 82294 (W.D. Mo. June 12, 2013).

In August 2013, Appellants-Petitioners in Carter filed a petition for writ of

certiorari with the U.S. Supreme Court seeking review of the Fourth Circuit’s

WSLA decision.76 The Supreme Court has since invited the U.S. Solicitor

General to file a brief expressing the views of the U.S. in this case. Should

the Supreme Court grant certiorari, its opinion could have significant

ramifications for defendants currently facing the prospect of ever-increasing

costs and unpredictable liabilities arising from the WSLA’s tolling provision.

reverSe FALSe cLAimS cASeS

Known as involving “reverse false claims,”77 § 3729(a)(1)(G) provides for

FCA liability where a defendant either: (1) knowingly makes, uses, or causes

to be made or used a false record or statement material to an obligation

to pay money to the government, or (2) knowingly conceals or knowingly

and improperly avoids or decreases an obligation to pay money to the

government.78 Like claims asserted under § 3729(a)(1)(A) and § 3729(a)(1)

(B), reverse false claims allegations are subject to the heightened pleading

standards of Rule 9(b).

The possibility of facing such claims has taken on increased significance

for healthcare providers, as the Fraud Enforcement Recovery Act (“FERA”)

amended the FCA such that knowing retention of overpayments is now explicitly

actionable under the FCA. A healthcare provider’s affirmative obligation to

investigate potential Medicare and Medicaid overpayments and, accordingly,

to follow up on any evidence of such overpayments was emphasized by the

district court in U.S. ex rel. Keltner v. Lakeshore Med. Clinic, Ltd.79 The

district court held that relator had satisfied Rule 9(b)’s heightened pleading

requirements based on allegations that the defendant, a multi-specialty

medical group, was overbilling Medicare by upcoding and intentionally refusing

to investigate instances of improper coding. The district court held that relator

“plausibly suggest[ed] that [defendant] acted with reckless disregard for the

truth and submitted some false claims” and highlighted that if the “government

71. 2013 U.S. Dist. LEXIS 136539 (S.D.N.Y. Sept. 24, 2013). 72. 2013 U.S. Dist. LEXIS 104650 (W.D. Pa. July 26, 2013). 73. Id. at 20. 74. Id. at 19. 75. Id. at 14. 76. See Kellogg Brown & Root Servs. v. U.S. ex rel. Carter, No. 12-1497 (U.S. 2013), petition for writ of certiorari filed June 24, 2013. 77. 2013 U.S. Dist. LEXIS 97991, *58 (E.D. Mich. July 15, 2013). 78. 31 U.S.C. § 3729(a)(1)(G). 79. 2013 U.S. Dist. LEXIS 44640 (E.D. Wis. March 28, 2013).

[T]he legislative history and Congressional

intent behind both the WSLA and the FCA

caution against application of the WSLA’s tolling

provisions to private FCA claims.

–U.S. ex rel. Emanuele v. Medicor Assocs.

serves not only to allow the government to combat fraud related to wartime

procurement programs, but also to give the government sufficient time to

investigate and prosecute pecuniary frauds of any kind committed while the

nation is distracted by the demands of war.”71 The district court also rejected

the defendant’s argument that the amendments to the WSLA were not

retroactive, holding that any FCA “claims that were live as of October 24,

2008, when the WSLA was amended to apply to congressional authorizations

for the use of military force, are timely.”

Not all courts, however, have interpreted the WSLA so broadly. In U.S. ex

rel. Emanuele v. Medicor Associates, the district court provided a detailed

analysis of both the majority and dissenting opinions in the Fourth Circuit’s

opinion in Carter, ultimately rejecting the Fourth Circuit’s reasoning and

concluding that the WSLA is inapplicable to a private FCA action (involving

physician kickback allegations) in which the government declines to

intervene.72 Specifically, the district court explained that “the legislative

history and Congressional intent behind both the WSLA and the FCA caution

against application of the WSLA’s tolling provisions to private FCA claims.”73

To hold otherwise, the district court observed, would directly thwart the

FCA’s purpose by “allowing private relators to take advantage of the WSLA’s

tolling provisions”74 by giving relators a “strong financial incentive”75 to allow

claims to build up over time in order to maximize the potential recovery.

| 11

overpaid defendant for . . . services and defendant intentionally refused to

investigate the possibility that it was overpaid, it may have unlawfully avoided

an obligation to pay money to the government.”80

Although principally a public disclosure bar case as discussed above, the

district court in Osheroff also considered whether the relator properly

pleaded a reverse false claim.81 The relator alleged that defendant charged

physicians below-market lease rates in order to induce referrals. Finding that

the relator failed to allege that defendant committed fraud “for the purpose

to conceal, avoid, or decrease an obligation to pay money to the government,”

the district court dismissed the reverse false claim count.82 Specifically, the

district court found that the relator failed to plead particular facts from

which one could infer that Tenet owed an obligation to the government or

made a fraudulent statement to avoid or decrease it.83

Whether the relator pleaded a reverse false claims FCA claim in accordance

with Rule 9(b) was at issue in U.S. ex rel. Saldivar v. Fresenius Med. Care

Holdings, Inc. The relator alleged that the defendant, a dialysis services

provider, was fraudulently billing Medicare and Medicaid for injectable drugs

that it received free of charge as “overfill” in each vial.84 In partially denying

relator leave to file a third amended complaint, the district court reasoned that

the relator’s reverse false claim allegations were not appropriately pleaded.85

Absent allegations that the relator actually submitted a claim for payment

to the federal government for “ghost overfills,” the court found the reverse

false claim was not pled with the particularity demanded by Rule 9(b).86

deveLopmeNtS regArdiNg dAmAgeS

There have been a number of significant decisions concerning the manner

in which damages should be calculated under the FCA. In United States v.

Anchor Mortgage Corp., the Seventh Circuit explained that when calculating

the government’s actual damages that may be trebled under the FCA,

courts must look to the “net loss” sustained by the government rather than

the gross amount paid on any false claims.87 In endorsing what has been

referred to as the “net trebling approach,” the Seventh Circuit rejected the

government’s argument for “gross trebling,” which would apply any reduction

to actual damages after trebling. While not in the healthcare context, the

decision in Anchor Mortgage nonetheless offers providers an argument in

favor of reducing damages in cases in which the government seeks an FCA

recovery without suffering actual damages. Such a scenario might include

an FCA claim based on a violation of the Anti-Kickback Statute in which the

government seeks to recover reimbursement for medically necessary claims

tainted by the alleged kickbacks. It remains to be seen whether courts will

apply Anchor Mortgage in such a context.

In SAIC, the government sought the total amount paid to SAIC under its

agreement with a federal agency as a result of what the government

characterized as false claims and statements relating the SAIC’s failure to

disclose certain conflicts. The district court explained that to recover the

full amount that the government paid, the government must show by a

preponderance of the evidence that the value of SAIC’s performance under

the contract was completely compromised by the false claims and false

statements.88 The district court rejected SAIC’s claim that there was not

sufficient evidence to allow this question to proceed to the jury and denied

SAIC’s motion for summary judgment.

Basing damages on net loss is the norm in civil

litigation….The district judge must recalculate

the award using the net trebling approach.

–United States v. Anchor Mortgage Corp.

| 12

80. Id. at 10. 81. 2013 U.S. Dist. LEXIS 44235 (S.D. Fla. Mar. 27, 2013). 82. Id. at 30-31. 83. Id. at 31. 84. 2013 U.S. Dist. LEXIS 136970 (N.D. Ga. Sept. 17, 2013). 85. Id. at 29-30. 86. Id. 87. 711 F.3d 745 (7th Cir. 2013). See also U.S. ex rel. Humane Society v. Hallmark Meat Packing Co., 2013 U.S. Dist. LEXIS 126946 (C.D. Cal. Apr. 30, 2013) (considering various damages arguments and discussing the Ninth Circuit’s approach to the calculation of damages). 88. 2013 U.S. Dist. LEXIS 102185, *63-68.

deveLopmeNtS regArdiNg reLAtorS

considering the First-to-File rule

The first-to-file rule provides that a relator cannot maintain a qui tam action

if a different relator already has filed a qui tam complaint regarding the same

allegations. In U.S. ex rel. Heineman-Guta v. Guidant Corp., the First Circuit

considered whether the first-to-file rule requires that the first-filed complaint

meet the heightened pleading requirements of Rule 9(b) to bar a later-filed

complaint.89 In affirming the decision of the district court, the First Circuit

concluded that a previously-filed complaint bars a later-filed complaint if

the later-filed complaint states all the essential facts of a previously-filed

complaint or the same elements of fraud as described in the earlier suit.

According to the First Circuit, the first-filed complaint did not have to meet

the requirements of Rule 9(b) in order to bar the later-filed complaint.

FcA retaliation claims

The FCA protects whistleblowers who engage in protected activity under

the FCA by prohibiting employers from taking adverse action against

whistleblowers as a result of their protected activity. In general terms, a

successful claim for retaliation under the FCA requires that a whistleblower

establish three elements: (1) that the whistleblower engaged in “protected

activity” by acting in furtherance of a qui tam suit; (2) that the whistleblower’s

employer knew of these acts; and (3) that the employer took adverse action

against the whistleblower as a result of these acts.

In Glynn v. Edo Corp., the Fourth Circuit considered the first of these

requirements. The Fourth Circuit explained that to engage in “protected

activity” the whistleblower must be engaged in the reporting of an act that

could lead to a viable FCA lawsuit.90 In other words, while a whistleblower need

not file an actual qui tam lawsuit to be protected from retaliation under the

FCA, the whistleblower must engage in activities (i.e., investigation activities)

that raise a distinct possibility of a viable FCA action, which the relator had

not in Glynn. The Fourth Circuit reached this conclusion notwithstanding the

fact that the activities of the whistleblower successfully triggered a federal

criminal investigation.

The district court considered the third requirement to state a retaliation

claim under the FCA in U.S. ex rel. Schweizer v. Océ N. Amer.91 Although

courts have interpreted the third element of stating an FCA retaliation claim

to require a showing that the adverse employment action was motivated at

least in part by the employee’s engagement in protected activity, the district

court in Schweizer explained that a recent decision by the Supreme Court

in Univ. Tex. Sw. Med. Ctr. v. Nassar,92 demands that more stringent “but-

for” requirement concerning pleading that an employer discharged the

employee “because of” the protected activity should be applied. In doing

so, the district court held that “where Congress has given plaintiffs the right

to sue employers for adverse actions taken against them by their employer

‘because of’ X, plaintiffs may success only by showing that X was a ‘but-for’

cause of the adverse action, not merely one of several ‘motivating factors’ . . . .

89. 718 F.3d 28, 34-35 (1st Cir. 2013). 90. 710 F.3d 209, 214-18 (4th Cir. 2013). 91. 2013 U.S. Dist. LEXIS 101419 (Jul. 19, 2013). 92. 133 S. Ct. 2517, 2520 (2013).

| 13

433

753

800

700

600

500

400

300

200

100

02009 2010 2011 2012 2013

NUMBER OF NEW qUI TAM LAWSUITS FILED BY YEAR (FY 2009-2013)

Relators filed 753 new qui tam lawsuits under

the FCA in FY2013.

To succeed on her claim, a plaintiff must show that retaliation for protected

activity was a ‘but for’ cause of the adverse action.”93

LimitiNg diScovery iN FcA cASeS

Relators often allege nationwide practices which could entitle them to wide-

ranging discovery. Last year, however, several courts demonstrated well-

founded sensitivity to the expense and burden of nationwide discovery and

curbed relators’ broad discovery requests.

In perhaps the leading case on this issue, U.S. ex rel. Duxbury v. Ortho

Biotech Prods., L.P.,94 the First Circuit issued a rare appellate-level opinion

on the scope of discovery into an alleged nationwide kickback scheme by the

relator’s former employer. In Duxbury, the district court imposed geographic

and temporal limitations on the relator’s discovery requests because the

relator was an original source only with respect to claims arising during his

employment with the defendant, and because he only possessed “direct

and independent knowledge” of the defendant’s activities in the locations

for which he had responsibility.95 After the relator was unable to identify

any admissible evidence supporting his claim, the district court granted the

defendant’s motion to dismiss.96

On appeal, the relator argued that the district court had inappropriately

limited discovery. The First Circuit, however, affirmed the district court’s

restrictions on discovery, stating that it “was not required to expand the

scope of discovery based upon the amended complaint’s bold assertions

that the purported kickback scheme continued after [relator’s] termination

or that it was ‘nationwide’ in scope.”97

In U.S. ex rel. Spay v. CVS Caremark Corp.,98 the relator alleged that

pharmacy benefit managers violated the FCA by engaging in an on-going,

nationwide practice of fraudulently adjudicating claims and submitting

inaccurate prescription drug event reports to CMS. Following the denial of

the defendants’ motion to dismiss, the relator sought extensive, nationwide

discovery from 2006 to the present. The defendants objected to both the

temporal and geographic scope of the relator’s requests.

The district court agreed with the defendants and dramatically limited the

scope of the initial discovery. The district court observed that, although the

relator had survived a motion to dismiss the nationwide claims, “[t]he cost

of discovery in this case could be so prohibitive as to force Defendants into a

settlement based not on any assessment of the merits of the case against it,

but simply to avoid the undue burden associated with what could potentially

be a mere fishing expedition.”99 Accordingly, the district court limited

discovery to 2006 to 2008, the period for which the relator made specific

factual allegations regarding the defendants’ alleged fraud.100 Furthermore,

the district court limited the geographic scope of the relator’s initial discovery

to only the six jurisdictions (five states and Puerto Rico) in which the relator

set forth specific examples of false claims based on its personal knowledge.101

Conversely, in United States v. Education Management LLC,102 the court

approved an expansive plan of discovery with only relatively minor

limitations. The plaintiffs alleged that a for-profit education company and

its affiliates, engaged in a nationwide fraud by adjusting admissions officers’

compensation based on the number of students they enrolled in violation of

federal regulations. The district court allowed the relator an almost unfettered

right to conduct substantial, nationwide discovery over the objection of

| 14

To succeed on her claim [under the FCA],

a plaintiff must show that retaliation for

protected activities was a “but-for” cause of

the adverse action.

–U.S. ex rel. Schweizer v. Océ N. Am., Inc.

93. 2013 U.S. Dist. LEXIS 101419, at *32. 94. 719 F.3d 31 (1st Cir. 2013). 95. Id. at 36. 96. Id. at 32-33. 97. Id. at 39. 98. 2013 U.S. Dist. LEXIS 121554 (E.D. Pa. Aug. 27, 2013). 99. Id. at *27. 100. Id. at 12-13. 101. Id. at 29. 102. 2013 U.S. Dist. LEXIS 102549 (W.D. Pa. July 23, 2013).

defendants.103 In evaluating the propriety of the requested discovery, the district

court observed: “Discovery in this case will undoubtedly present a Herculean

task. But in evaluating the burden and expense of discovery, the Court must

consider it in the context of an amount in controversy of billions of dollars; that

the government and [defendants] both possess significant resources; and that

the issues are of surpassing importance, particularly to [defendants].”104

In addition to disputes regarding the scope of discovery, courts have ruled on

disputes over parties’ preservation obligations. In United States ex rel. King

v. Solvay, S.A., the relators sought discovery related to alleged “ongoing”

fraud committed by a pharmaceutical company.105 The defendant moved for

a protective order, arguing that the relators’ requests were causing it undue

burden and expense. The defendant’s protective order was remarkably

detailed, identifying the number and storage volume of email back-up tapes,

network share back-up tapes, and active network share drives, and providing

an estimate of the costs of preservation and review.106 The district court

agreed that the discovery demanded by the relators was unduly burdensome,

particularly given the relatively sparse allegations in the complaint regarding

ongoing conduct (despite the court’s denial of the defendant’s motion to

dismiss).107 Accordingly, the district court limited discovery to the time period

suggested by the defendant.

JUdiciAL review oF SettLemeNtS

As a consequence of the continued number of large FCA settlements, an

increasing number of district courts have confronted settlement issues

arising from such cases. Courts now have addressed the treatment of

settlements for tax purposes and issues involving relators’ settlement share.

tax treatment of FcA Settlements

In Fresenius Medical Care Holdings, Inc. v. United States, the district

court issued a significant opinion for providers evaluating the likely tax

treatment of an FCA settlement.108 The district court did not disturb a jury’s

verdict finding that $95 million of $126.7 million in disputed FCA settlement

payments were compensatory damages, and therefore, tax deductible as an

ordinary and necessary business expense. In so ruling, the district court held

that “a manifest agreement is not necessary for Fresenius to establish that

all or some portion” of the settlement payments were compensatory, and

that “both the language of the settlement agreements and non-contractual

evidence regarding the purpose and applications of the payments” must be

considered by a fact finder to determine the categorization of the payments.

This holding is significant because it means that despite the government’s

customary inclusion of a tax neutrality provision in a settlement agreement

resolving FCA claims, a provider still can present non-contractual evidence

to demonstrate that the purpose served by a settlement payment was

compensatory and therefore deductible.

control over FcA Settlement Agreements

In reviewing FCA settlements, district courts have continued to rein in the

government’s discretion in the settlement process. In U.S. ex rel. Osheroff v.

MCCI Group Holdings, LLC, the district court confronted the question of

whether a settlement between a relator and a defendant is enforceable

without the government’s consent when the government declined to

intervene.109 The relator in Osheroff reached an agreement with MCCI during

mediation, the terms of which were set forth in a “Memo of Understanding”

executed by both parties and their counsel. In subsequent negotiations to

finalize a formal settlement agreement, MCCI removed certain provisions

| 15

600

500

400

300

200

100

02009 2010 2011 2012 2013

RELATOR SHARE AWARDS 2009–2013 ($ in millions)

103. Id. at 16-17. 104. Id. at 16. 105. 2013 U.S. Dist. LEXIS 30752 (S.D. Tex. Mar. 5, 2013). 106. Id. at *7. 107. Id. at 13-14. 108. 2013 U.S. Dist. LEXIS 66234 (D. Mass. May 9, 2013). 109. 2013 U.S. Dist. LEXIS 108741 (S.D. Fla. Aug. 2, 2013).

regarding the potential tax treatment of the settlement and barring MCCI

from charging back to the government any unallowable costs stemming from

the settlement. In later communications, the government emphasized that

it would not consent to the settlement without the inclusion of these two

provisions. After MCCI attempted to back out of the settlement agreement,

the relator moved to enforce the agreement.

In granting the relator’s motion, the district court rejected a magistrate

judge’s recommendation that MCCI be permitted to withdraw from its

agreement because the parties failed “to meet the condition precedent

that the agreement be approved by the attorney general.” The district court

found that the parties reached an agreement on all the essential terms and

memorialized the agreement in the Memo of Understanding. Because the

government was not a party to the action, its input could not affect whether

the parties reached an enforceable agreement.

Although the FCA states that the government must consent to dismissal,

the district court noted that the FCA does not require the government’s

“consent to the parties’ settlement in order for a binding agreement to

result.” Furthermore, the provisions sought by the government “amount

to little more than boilerplate” and are “not germane to the dispute being

resolved.” The district court declined to address the question of whether the

government’s consent to dismissal is required in a non-intervened case, but

noted in dicta that it had “its doubts.”110

Last year, the D.C. Circuit ruled that the federal government could not

settle a qui tam action over the objection of a relator absent a finding by

the district court that the proposed settlement was fair, adequate, and

reasonable under the circumstances, as required by 31 U.S.C. § 3730(c)(2)

(B). On remand, in U.S. ex rel. Schweizer v. Océ N. Am., Inc., the district court

considered the following five factors in deciding whether the settlement was

fair, adequate, and reasonable: (1) whether the settlement was the result of

arm’s length negotiations; (2) the terms of the settlement in relation to the

strengths of plaintiffs’ case; (3) the status of the litigation proceedings at

the time of settlement; (4) the reaction of the relator; and (5) the opinion of

experienced counsel.111 As a threshold issue, the district court held that that a

relator is not entitled to “full-blown discovery” as a matter of right in order to

demonstrate the inadequacy of a settlement (though the court noted there

may be circumstances where limited discovery is appropriate).

In approving the settlement, the district court focused on the first three factors,

concluding that each factor supported the approval of the settlement because:

(1) the relator did not allege any collusion between the government and the

defendant in reaching the settlement agreement; (2) “the government’s

assessments of the strength of plaintiff’s claims and the attendant litigation

risks are based on a significant investigative effort on their part [and] are

sufficiently detailed and comprehensive;” and (3) the government’s significant

investigative efforts provided it with “adequate information to make an

informed judgment regarding the settlement.”

In U.S. ex rel. Roberts v. Accenture, LLP, the Eighth Circuit affirmed a lower

court’s award to the relators of a settlement share that was $7 million more

than the government anticipated.112 In reaching a $55 million settlement with

one of the defendants to resolve kickback and defective pricing allegations

in government contracting, the government expected to limit the relators’

share to the settlement of the kickback scheme ($9 million). The government

contended that the relators were not entitled to any part of the defective

pricing settlement ($46 million) because their allegations as to that scheme

were insufficient under Rule 9(b) and were unrelated to the defendant’s

voluntary disclosure or the government’s own investigation of the matter.

The Eighth Circuit disagreed, holding that, at least in a case where the

government intervenes, Rule 9(b) plays no role in determining whether a

relator is entitled to a share of any settlement proceeds. In addition, the Eighth

Circuit noted that the relators’ complaint and assistance in prosecuting the

action spurred the defendant’s internal investigation and the government’s

decision to intervene; thus, “the relators should be rewarded accordingly.”

Beyond strengthening the position of relators in settlement negotiations,

this case also is significant for providers to consider because any change in

a relator’s settlement share for additional claims could alter the amount of

attorneys’ fees and costs for which a defendant is liable.

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110. Specifically, the district court recognized the split of authority on this issue and noted an initial preference for the approach taken in U.S. ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994) and U.S. ex rel. Fender v. Tenet Healthcare Corp., 105 F. Supp. 2d 1228 (N.D. Ala. 2000), which hold that the government’s “consent to dismissal is only required during the initial sixty-day (or extended) period in which the government may decide whether to intervene.” 111. 2013 U.S. Dist. LEXIS 101419 (D.D.C. July 19, 2013). 112. 707 F.3d 1011 (8th Cir. 2013).

113. 2012 U.S. Dist. LEXIS 36304 (M.D. Fla. March 19, 2012).

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cASeS to wAtch

Applying Stark to medicaid claims

It comes as no surprise when relator’s counsel and the government seek

to expand the reach of the FCA. This is certainly the case in recent efforts

to premise FCA liability on Medicaid claims allegedly rendered false by

violations of the Stark Law.

In U.S. ex rel. Baklid-Kunz v. Halifax Medical Center, the relator alleged

that Halifax Medical Center’s payment of productivity bonuses to employed

medical oncologists, neurologists, and psychiatrists constituted an improper

financial relationship with referring physicians in violation of the Stark Law

and that Halifax’s submission of claims to Medicare and Medicaid as a result

of such tainted referrals violated the FCA.113 The United States intervened in

the case with respect to the FCA claims premised on a violation of the Stark

Law and specifically alleged that “[t]he Stark Statute also applies to claims

for payment under Medicaid, and federal funds may not be used to pay for

designated health services through a state Medicaid program.”

Responding to the government’s argument, Halifax pointed out that under

Medicaid, providers are reimbursed by the state and not the federal

government, and neither the Stark Law, nor the Medicaid statute prohibited

states from paying claims based upon referral arrangements that may violate

the Stark Law. Even assuming that the Medicaid claims Halifax submitted to

the state implicated improper referral arrangements concerning Medicare,

Halifax contended that the Stark Law should not be interpreted as to prohibit

the former, “so there could be no FCA violation.”

Halifax’s interpretation was supported by the very language of the Stark

Law and its implementing regulations – each of which refers to Medicare,

not Medicaid – and the past two decades of regulatory activity, in which CMS

considered, but never finalized rules that would have implemented § 1903(s)

of the Social Security Act, which purported to expand the Stark Law to

Medicaid. Consistent with Halifax’s argument, it has been widely understood

by practitioners and providers alike, and tacitly by CMS itself, that the Stark

Law applied to claims submitted to Medicare, but not Medicaid.

Nonetheless, the district court adopted the government’s argument, refusing

to dismiss the FCA claims related to reimbursement under Medicaid from

the lawsuit. “The Medicaid statute prohibits payments to a state for medical

services resulting from improper referrals, as defined under the Stark

Amendment,” the district court wrote, and for its part, the FCA imposes liability

on a defendant who causes another to submit a false claim. The district court

found, therefore, that an FCA claim based on the allegation that Halifax caused

the state of Florida to submit false claims to the federal government tainted by

a violation of the Stark Law was sufficient to survive a Rule 12(b)(6) challenge.

On its face, Halifax signals that the government likely will continue to

interpret the Stark Law to prohibit certain referral practices under Medicaid,

not just Medicare. The government’s assertion in Halifax that the Stark

Law’s prohibitions apply to Medicaid claims constituted a dramatic – and

for Halifax, potentially costly – shift in interpretation. It remains to be seen

whether other jurisdictions adopt this broad interpretation of the Stark Law

as it applies to the FCA.

While there are undoubtedly a number of healthcare-related cases that will garner attention during the coming year, we believe that there are at least two cases that will be of particular interest to healthcare providers and practitioners.

pleading the presentment of a False claim under rule 9(b)

In U.S. ex rel. Nathan v. Takeda Pharms. N. Am., Inc., the Fourth Circuit

affirmed the district court’s decision dismissing the relator’s FCA claims

based on an alleged off-label marketing scheme, in part, because the

complaint failed to allege the “presentment” of an actual false or fraudulent

claim to the government.114 In reaching this conclusion, the Fourth Circuit

rejected the relator’s argument for a more lenient application of Rule 9(b),

which would excuse a lack of plausible allegations of presentment, if the

relator pleaded allegations of a fraudulent scheme.

“Applying the principles” enunciated by several other circuits, the Fourth

Circuit held that “when a defendant’s actions, as alleged and as reasonably

inferred from the allegations could have lead, but need not necessarily have

led, to the submission of false claims, a relator must allege with particularity

that specific false claims actually were presented to the government for

payment.” The Fourth Circuit recognized that in many instances, a relator

may have difficulty accessing billing documentation, as a result of physical

and legal barriers. Such circumstances, the Fourth Circuit explained, did not

excuse a relator from “pleading facts that support all elements of a [FCA]

claim,” including presentment of an actual claim.

On May 10, 2013, the relator in Takeda filed a petition for a writ of certiorari

with the U.S. Supreme Court, seeking review on the question of whether Rule

9(b) requires that a complaint under the FCA “allege with particularity that

specific false claims actually were presented to the government for payment,

as required by the Fourth, Sixth, Eighth, and Eleventh Circuits, or whether it is

instead sufficient to allege the particular details of the scheme to submit false

claims together with sufficient indicia that false claims were submitted, as

held by the First, Fifth, and Seventh, and Ninth Circuits.” On October 7, 2013,

after the parties completed their briefing, the U.S. Supreme Court invited

the U.S. Solicitor General to file a brief expressing the views of the United

States on the matter. Such an invitation would seem to suggest at least some

members of the Court are interested in reviewing the Takeda decision.

Rule 9(b)’s mandate, as set forth by several circuits, that a FCA complaint

allege “presentment” of an actual claim with particularity is a critical hurdle

upon which providers typically rely in seeking dismissal in FCA claims pursued

by relators. Should the U.S. Supreme Court decide to grant certiorari and

consider the pleading standard at issue in Takeda, it will be an incredibly

important development, as the Court’s opinion on this question could have a

significant impact on a relator’s ability to meet the requirements of Rule 9(b)

and successfully plead a cause of action under the FCA.

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114. 707 F.3d 451 (4th Cir. 2013).

| 19

115. 2013 US Dist. LEXIS 73610 (D.D.C. May 24, 2013). 116. 2013 US Dist. LEXIS 141316 (D.S.C. Sept. 30, 2013). 117. Id. at 7.

rule making challenges

CMS scored a victory in Council for Urological Interests v. Sebelius, that

involved a dispute over CMS’s 2008 expansion of the Stark Law’s regulatory

definition of “entity” and CMS’s prohibition of “per-click” equipment lease

payments for services referred to by the physician-landlord.115 Counsel

for Urological Interests (“CUI”) had alleged that CMS’s 2008 regulatory

interpretations failed to comply with the Administrative Procedures Act

and the Regulatory Flexibility Act. The district court, however, concluded

that CMS’s interpretations of the statute did not violate congressional intent

and were reasonable. As a result, the 2008 changes, already well-ingrained

at this point, remain: (1) physician-owned joint ventures may not “furnish”

inpatient or outpatient hospital services under-arrangements, and (2) direct

or indirect physician-landlords may not receive a per-click fee under a space

or equipment lease to the extent that such charges reflect services provided

to patients referred by the lessor to the lessee.

employment relationships

No case captured the attention of healthcare providers concerning physician

employment arrangements more than U.S. ex rel. Drakeford v. Tuomey

Health Care.116 The qui tam complaint in Tuomey was filed by a physician

whistleblower in 2005 accusing Tuomey of paying physicians more than their

actual professional collections under employment contracts with the hospital.

The relator accused the hospital of implementing this compensation scheme

based on the rationale that it would make up for any shortfalls through

referrals from the doctors for other services. After intervention by the U.S.

and nearly eight years after the case was filed, including two jury trials and

numerous appeals, the district court ordered Tuomey to pay $237 million

in damages and penalties.

According to the government, Tuomey and a competing surgery center

were both granted certificates of need for surgery centers. The government

alleged that Tuomey had determined that it would lose approximately

$9.6 million in revenue over a 13 year period if gastroenterologists redirected

their endoscopies away from Tuomey and to the competing surgery center.

To head off this decline in revenue, Tuomey recruited specialist physicians

into lucrative part-time employment contracts, including compensation

that amounted to 31% in excess of the total net collections those physicians

would have earned as independent contractors, and, thus above fair market

value for their services.

Tuomey ultimately offered 19 physicians on its medical staff part-time

employment. Each contract specified that the physician was required to perform

outpatient procedures at Tuomey (or facilities owned by Tuomey). Under each

contract, Tuomey was solely responsible for billing and collections and agreed

to pay each physician: (1) an annual base salary that fluctuated based on

Tuomey’s net cash collections for the outpatient procedures; (2) a productivity

bonus equal to 80% of net collections; and (3) potentially, an incentive bonus

that could total up to 7% of the productivity bonus.117 Each contract had a 10

year term and provided that the physicians would not compete with Tuomey

during the term of the contract and for two years thereafter.

The jury heard testimony that Tuomey and the physician relator jointly

retained a highly regarded healthcare attorney, who expressed concerns

that the physician contracts were problematic. The jointly-retained attorney

cautioned Tuomey that the terms of the contracts would raise a “red flag” and

expose Tuomey to liability because, in his opinion, the physicians were being

StArk LAw/ANti-kickBAck StAtUte

It has been an active year for decisions interpreting the two most well-known fraud and abuse laws, the federal Stark Law (42 U.S.C. § 1395nn) and the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b).

because incentive bonus induced referrals did not vitiate the protection of

the safe harbor; such a result, the district court explained, would constitute

“the rule swallowing the exception.”

The district court in U.S. ex rel. Schubert v. All Children’s Health System,

Inc., addressed a productivity bonus in granting the defendant’s motion

to dismiss with respect to a claim regarding one physician.121 The court

reiterated that productivity bonuses based on personally performed services

are permissible.

Fair market value and commercial reasonableness

Several FCA qui tam cases during the previous year were based on allegations

focused on the fair market value and commercial reasonableness of physician

compensation relationships with hospitals in the context of the hospital losing

money on the physician professional collections. In Halifax, the district court

recently denied defendants’ motion for summary judgment on the issue of

whether compensation paid to three neurosurgeons is fair market value and

commercially reasonable.122 Beyond whether the total compensation was fair

market value, whether inclusion of ancillary professionals (e.g., physician

assistants) in the physicians’ productivity numbers inappropriately inflate

those numbers for purposes of the Stark Law also remains at issue in Halifax.

recruitment Agreements

In U.S. ex rel. Dennis v. Health Management Associates, Inc.*, the district

court dismissed all claims against the defendants in which the FCA claims

were based on allegations that recruitment agreements violated the Stark

Law and the Anti-Kickback Statute.123 The relator alleged that the recruitment

agreements were illegal because: (1) a provision in his recruitment agreement

required that he maintain active staff privileges; and (2) hospital bylaws

required active staff members to admit 24 patients a year. The district court

dismissed these allegations as sufficient to form an FCA claim because a

“contractual requirement that a physician maintain active staff status is

not equivalent to a referral requirement” and held that a hospital bylaws

provision requiring a minimum of 24 admissions per year did not cause the

paid in excess of fair market value and the contracts contained “unusual”

components.118 Tuomey ultimately terminated the healthcare attorney and

directed him not to prepare a written opinion.

At the conclusion of the trial, the jury concluded that the 19 physician

arrangements violated the Stark Law and that Toumey had submitted 27,730

false claims. The district court then entered judgment in the amount of

$237 million after applying the FCA’s per claim penalty. The case is pending

appeal before the Fourth Circuit.

productivity Bonuses

The district court in U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center

and Halifax Staffing, Inc., issued several decisions providing interpretations

relevant to the Stark Law and Anti-Kickback Statute in the context of

physician employment. In Halifax, several medical oncologists employed by

the hospital were paid an incentive bonus out of a pool comprised of 15% of

the profits of the hospital’s oncology program, which included revenue for

services not personally performed by the physicians.119 The bonus pool was

divided among the physicians based on their individual production.

The district court ruled that, in order to meet the Stark Law’s employment

exception, bonuses paid to employed physicians may only be based on

personally performed services; accordingly, dividing a bonus pool that

includes non-personally performed profits based on personally performed

services is insufficient to comply with the Stark Law.

Regarding the same medical oncologist employment relationships, the

district court subsequently denied the relator’s motion for summary

judgment asserting that the incentive compensation induced referrals

such that medical oncologists’ employment arrangements violated the

Anti-Kickback Statute.120 The district court explained that the bona fide

employment safe harbor protects payments to legitimate employees from

the normal prohibition on payments to induce referrals. As such, the district

court rejected the relator’s assertion that the safe harbor did not apply

| 20

118. Id. at 21-22. 119. 2013 U.S. Dist. LEXIS 161718 (M.D. Fla. Nov. 13, 2013). 120. 2013 U.S. Dist. LEXIS 167882 (M.D. Fla. Nov. 26, 2013). 121. 2013 U.S. Dist. LEXIS (M.D. Fla. Nov. 15, 2013). 122. 2013 U.S. Dist. LEXIS 163695 (M.D. Fla. Nov. 18, 2013). 123. 2013 US Dist. LEXIS 5212 (M.D. Tenn. Jan. 14, 2013).


arrangements to violate the Anti-Kickback Statute or the Stark Law.124 The

district court noted that “[i]t is a common and well known practice of hospitals

to classify active staff based in part on the number of admissions per year,”

and CMS “was aware of that fact” in allowing recruitment agreements to

contain provisions requiring active staff membership.125

rental of office Space

In U.S. ex rel. Osheroff v. Tenet HealthCare Corp., the district court declined

to dismiss FCA claims based on alleged violations of the Stark Law and

Anti-Kickback Statute stemming from physician space leases at below-

market rates.126 The relator alleged that the space leases systematically

underrepresented the size of the office space leased to physician tenants,

which effectively resulted in a rate that was below fair market value. The

relator also highlighted a number of allegedly non-standard benefits received

by physicians, which further lowered the effective rental rate. These benefits

included: (1) excessive tenant improvement allowances; (2) failure to charge

referring physicians the full “cost of living” increase; (3) medical waste

“red bag” collection service; (4) sharps collection service; (5) electrical and

utilities; (6) parking; (7) janitorial service; and (8) paper goods that are more

expensive than regular office paper goods.127 The district court held that the

relator’s detailed allegations were sufficient to allege a violation of both the

Anti-Kickback Statute and Stark Law, and in turn, a claim under the FCA.

Application of the Stark Law to medicaid claims

As referenced above, relators are filing an increasing number of FCA cases

based on the theory that Stark Law violations taint claims for reimbursement

submitted to Medicaid. This is a potentially significant expansion of FCA

liability. In U.S. ex rel. Schubert v. All Children’s Health System, Inc., the

Certifying compliance with the Stark

Amendment to ensure that CMS pays [Federal

Financial Participation] for Medicaid claims

that violate the Stark Amendment would be a

violation of the False Claims Act in the same

manner that certifying compliance for full

reimbursement under Medicare would be.

–U.S. ex rel. Schubert v. All Children’s Health Sys., Inc.

| 21

124. Id. at 30-31. 125. Id. at 34. 126. 2013 US Dist. LEXIS 44235 (S.D. Fla. Mar. 27, 2013). 127. Id. 128. 2013 U.S. Dist. LEXIS (M.D. Fla. Nov. 15, 2013). 129. 2013 US Dist. LEXIS 44235 (S.D. Fla. Mar. 27, 2013). As discussed above, the district court in U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center and Halifax Staffing, Inc., 2013 U.S. Dist. LEXIS 161718 (M.D. Fla. Nov. 13, 2013), reached a similar conclusion regarding the possibility that the Stark Law could taint Medicaid claims.

district court concluded that the Stark Law clearly applies to Medicaid and a

violation of the Stark Law could form the basis of an FCA claim if claims for

reimbursement were submitted to Medicaid.128

A similar result was reached in U.S. ex rel. Osheroff v. Tenet HealthCare

Corp., in which the relator alleged that Medicaid claims were false due to

Stark Law violations. In its order denying the defendant’s motion to dismiss,

the district court held that “because . . . cost reports submitted to Medicare

can form the basis for liability under the False Claims Act, the court arrives

at the same conclusion regarding the cost reports submitted to Medicaid

and Tricare, in light of the fact that both Medicaid and Tricare rely on the

representations made in the Medicare cost report.”129

| 22

130. American Hosp. Ass’n et al. v. Kathleen Sebelius, No. 1:12-cv-1770 (D.D.C. Nov. 1, 2012). 131. Id. at 1, 27. 132. Id. at 4. 133. 133 S. Ct. 817 (U.S. 2013). 134. See id. at 826. 135. See id. at 820, 828. 136. Medicare Program Integrity: Increasing Consistency of Contractor Requirements May Improve Administrative Efficiency, GAO-13-522 (2013), available at http://www.gao.gov/assets/660/656132.pdf.

The American Hospital Association’s (“AHA”) challenge of CMS’s refusal

to reimburse hospitals for Part B services when Recovery Auditors (f/k/a

as Recovery Auditor Contractors) denied hospitals’ Part A inpatient claims

for reasonable and necessary care continued during the previous year. 130 In

American Hosp. Ass’n v. Sebelius, the AHA’s Complaint argued that CMS had

failed to pay hospitals for “hundreds of millions of dollars’ worth of care”

where it was undisputed that the care was reasonable and necessary. The

AHA has sought an invalidation of CMS’s current payment denial policy of only

allowing payment for limited ancillary items. AHA also has sought an order

that the plaintiff hospitals be paid full Part B reimbursement for the specific

appeals at issue, and that all hospitals that received Part A denials based upon

an incorrect setting of care be paid full Part B reimbursement.131 The AHA’s

Complaint contends that CMS’s denial policy is against federal law and disturbs

hospitals’ financial planning and creates a dangerous uncertainty regarding

Medicare coverage that may negatively affect patient care.132 Faced with

mounting pressure from the AHA’s lawsuit, as well as appellate decisions calling

for Part B payments to offset Part A overpayments on inpatient hospital stays,

CMS changed its policy stance with an interim ruling and final rule. The change

revised CMS’s policy to allow expanded Part B billing after Part A denials. On

June 6, 2013, the HHS filed a motion to dismiss the AHA’s suit for lack of subject

matter jurisdiction and failure to state a claim, which remains pending.

In Sebelius v. Auburn Reg’l Med. Ctr., the U.S. Supreme Court determined that

the 180-day statute of limitations governing the filing of provider appeals to

the Provider Reimbursement Review Board (“PRRB”) was not “jurisdictional”

and may be extended in certain cases, but is not subject to equitable tolling to

further extend the time limits.133 Several hospitals received underpayments

for care provided to low income patients between 1993 and 1996 due to CMS’s

miscalculation. In 2006, a group of these hospitals filed similar claims with the

PRRB for full payment for years 1987 through 1994, more than 10 years after

the expiration of the 180-day limitation. The hospitals argued that the 180-

day statute of limitations should be equitably tolled because CMS knowingly

failed to disclose its payment calculation error. The Supreme Court explained

that the Secretary of HHS’s regulation allowing for a three-year extension

for good cause was permissible, as courts must defer to an agency’s

regulations unless they are “arbitrary, capricious or manifestly contrary to

the statute.”134 Additionally, the Supreme Court reasoned that giving fiscal

intermediaries more time to discover overpayments than providers have to

discover underpayments may be justified by the “administrative realities” of

the system, as intermediaries are responsible for multiple providers whereas

a single provider need only concentrate on itself and is often a sophisticated

party with legal representation.135

In addition to those significant court cases, government agencies issued

a number of reports during the previous year that scrutinized the role of

government contractors in the reimbursement process. On August 22, 2013,

the Government Accountability Office (“GAO”) released its report to Congress

entitled Medicare Program Integrity: Increasing Consistency of Contractor

Requirements May Improve Administrative Efficiency.136 GAO prepared its

report in response to questions posed by Senate and House Committees

medicAre coNtrActorS ANd reLAted LitigAtioN

There were significant developments in litigation related to Medicare contractors during the previous year.

regarding CMS’s use of multiple contractors to conduct post-payment

Medicare claims reviews and the efficiency and efficacy of such reviews.

The GAO report identified that CMS has varying post-payment review

requirements across the different contractors conducting post-payment

review in the areas of oversight of claims selection, timeframes for provision

of documentation, communications to providers about the reviews, and

quality assurance processes.137 GAO also noted that contractors are subject

to different requirements governing provider documentation submission

formats, additional documentation requests and timelines, and staffing

requirements for medical directors and other staff conducting reviews.138

Providers have expressed concerns that the contingency fee payment

structure created incentives for Recovery Audit Contractors (“RAC”) to be

too aggressive in determining improper claims, resulting in a significant

provider burden. Providers also reported that CMS failed to penalize RACs

for inaccurate claims determinations and noted that RACs were not required

to have medical directors or coding experts during the demonstration period.

The GAO found that these issues, in part, led to CMS more strictly limiting

RACs through post-payment review of RAC activity.139

The GAO concluded that differences across the Medicare contractor types

may decrease efficiency and effectiveness of claims’ reviews and complicate

providers’ compliance, which conflicts with executive-agency guidelines to

streamline service delivery. The GAO recommended that CMS: (1) examine

all post-payment review requirements and make them consistent where

possible; (2) publicly communicate its findings and anticipated timeframe

for improvements; and (3) decrease the number of different post-payment

requirements across the contractors where it can be done without impeding

its efforts to combat improper payments.140

On September 2, 2013, HHS-OIG published a report entitled Medicare

Recovery Audit Contractors and CMS’s Actions to Address Improper

Payments, Referrals of Potential Fraud, and Performance.141 The report

identifies problems with CMS’s oversight of RACs and predicts a continued

high volume of improper payments. Based on data from FYs 2010 and 2011,

RACs reviewed 2.6 million claims and found improper payments in half for

a total of $1.3 billion.142 The report identifies 46 of what CMS classifies as

“vulnerabilities” or a specific issue with more than $500,000 in improper

payments.143 CMS took corrective action to address these vulnerabilities, but

did not evaluate the effectiveness of these actions, nor did it address six

referrals of potential fraud it received from RACs.144 CMS’s RAC performance

evaluations did not provide metrics to evaluate RACs’ performance on

all contract requirements.145 The report recommends that CMS: (1) take

appropriate action on vulnerabilities that are pending corrective action and

evaluate the effectiveness of implemented corrective actions; (2) ensure

that RACs review all appropriate cases of potential fraud; (3) review and

take appropriate and timely action on RACs’ referrals of potential fraud;

and (4) develop additional performance evaluation metrics to improve

RAC performance and make sure that RACs are evaluated on all contract

requirements.146

Finally, on October 2, 2013, HHS-OIG released a report entitled The First

Level of the Medicare Appeals Process, 2008-2012: Volume, Outcomes and

Timelines.147 The study focuses on redetermination appeals for Medicare Part

A and Part B claims at level one of the appellate process within HHS between

2008 and 2012. The OIG surveyed 18 contractors about the redetermination

process and interviewed five to gather further information on how they

process redeterminations.

| 23| 22

137. Id. at 23-31. 138. Id. 139. Id. at 20. 140. Id. at 33. 141. Medicare Recovery Audit Contractors and CMS’s Action to Address Improper Payments, Referrals of Potential Fraud, and Performance, OEI-04-11-00680 (2013), available at http://oig.hhs.gov/oei/ reports/oei-04-11-00680.pdf. 142. See id. at 10-11. 143. See id. at 12-13. 144. See id. at 14-16. 145. See id. at 16. 146. See id. at 17-18. 147. The First of Level of Medicare Appeals Process, 2008-2012, OEI-01-12-00150 (2013), available at http://oig.hhs.gov/oei/reports/oei-01-12-00150.pdf.

The OIG reported that, in 2012, contractors processed 2.9 million redeterminations,

involving 3.7 million claims, which represents a 33% increase since 2008.148

Medicare Part A redeterminations have increased, although Part B claims account

for 80% of all redeterminations.149 As of 2012, RAC audits comprised 39% of

appealed Part A claims.150 Contractors decided in favor of Part B appellants more

often than Part A appellants.151 Contractors generally met required timeframes

for processing redeterminations, but fell short on deadlines for transferring case

files for second-level appeals.152 The OIG’s recommendations to CMS include: (1)

using the Medicare-Appeals-System (“MAS”) to monitor contractor performance;

(2) continuing to encourage information sharing between the contractors; and

(3) monitoring the quality of redeterminations data in MAS.153

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148. See id. at 8. 149. See id. 150. See id. at 10. 151. See id. at 11. 152. See id. at 14-16. 153. See id. at 21-22.

In its landmark 2012 opinion in United States v. Caronia, the Second Circuit reversed a pharmaceutical sales representative’s conviction under the Food, Drug, and Cosmetic Act, holding that the conviction violated his First Amendment right of free speech.154

Takeda Pharms. N. Am., the relator argued that it need only “allege the

existence of a fraudulent scheme that supports the inference that false

claims were presented to the government for payment.”160 The Fourth Circuit

disagreed: “when a defendant’s actions, as alleged and as reasonably inferred

from the allegations could have led, but need not necessarily have led, to the

submission of false claims, a relator must allege with particularity that specific

false claims actually were presented to the government for payment.”161 Thus,

the Fourth Circuit held that despite the relator’s detailed description of the

defendant’s business practices and his identification of specific physicians

who prescribed the defendant’s drugs, his complaint could not survive a

motion to dismiss.162

In contrast, in U.S. ex rel. Dickson v. Bristol Myers Squibb Co.,163 the district

court applied a remarkably liberal pleading standard. In Dickson, the relator

alleged that the defendants manipulated clinical trial data to make their

drugs appear more efficacious than comparable cheaper alternatives.164 In

denying the defendants’ motion to dismiss, the district court concluded that

the relator’s allegations regarding the defendants’ alleged scheme were

sufficiently detailed, although the decision made no reference to the specificity

of the relator’s allegations with respect to the presentation of false claims.

154. 703 F.3d 149 (2d Cir. 2012). 155. No. 10–cv-6457. (S.D.N.Y.). 156. Statement of Interest of the United States of America, United States ex rel. Cestra v. Cephalon, Inc., No. 10–cv-6457 (S.D.N.Y filed Nov. 7, 2013). 157. Id. at 2. 158. Id. at 4. 159. 707 F.3d 451 (4th Cir. 2013). 160. Id. at 456. 161. Id. at 457. 162. Id. at 460-461. 163. 289 F.R.D. 271 (S.D. Ill. 2013). 164. Id. at 274. | 25

phArmAceUticAL ANd medicAL device deveLopmeNtS

Courts since have grappled with how to apply the holding of Caronia, as

demonstrated in U.S. ex rel. Cestra v. Cephalon, Inc.155 In Cephalon, the

relator predicated his qui tam on alleged off-label promotion of two cancer

drugs. Relying on Caronia, the defendant has filed a motion to dismiss on

First Amendment grounds which remains pending.

In response to the motion to dismiss, the U.S. filed a statement of interest

attempting to distinguish the case from Caronia.156 The U.S. argued that

although the FCA does not forbid off-label promotion, it does forbid conduct

that may “cause” false claims to be submitted to the government.157 The U.S.

also claimed that in off-label promotion FCA cases, “the central question

is whether the defendant’s marketing caused the submission of the false

claims.”158 This statement of interest, in conjunction with the defendant’s

motion to dismiss on First Amendment grounds, demonstrates lingering

questions about how courts will approach off-label claims following the

decision Caronia.

In another off-label case, the Fourth Circuit affirmed the dismissal of a qui

tam on Rule 9(b) grounds where the relator failed to sufficiently allege the

“presentment” of a false or fraudulent claim.159 In U.S. ex rel. Nathan v.

hoSpitALS ANd hoSpitAL SyStemSDATE ENTITY FCA ALLEGATIONS

SETTLEMENT AMOUNT

January 4, 2013 EMH Regional Medical

Center, North Ohio Heart

Center Inc.

EMH Regional Medical Center and North Ohio Heart Center Inc. agreed to pay $4.4 million to resolve FCA

allegations that they performed angioplasty and stent placement procedures on Medicare patients who had heart

disease but whose blood vessels were not sufficiently occluded

to require the particular procedures at issue.1

$4.4 million

January 17, 2013 Cooper Health System d/b/a

Cooper University Hospital

Cooper Health System d/b/a Cooper University Hospital agreed to pay $12.6 million to resolve FCA allegations that

it made improper payments to physicians under consulting and compensation agreements to induce the referral of

patients to its cardiovascular program.2

$12.6 million

January 17, 2013 Wayne Medical Center After a voluntary self-disclosure, Wayne Medical Center agreed to pay $883,000 to resolve FCA allegations that it

received payment for ambulance services that were not medically necessary or for which medical necessity was

not documented, that were assigned an incorrect transport level, that were billed with incorrect mileage units,

for which a Physician Certification Statement was not obtained, and for which the requisite signatures were not

obtained.3

$883,000

February 6, 2013 St. Luke’s Roosevelt

Hospital Center; Continuum

Health Partners, Inc.; SLR

Psychiatric Associates

On February 6, 2013, St. Luke’s Roosevelt Hospital agreed to pay $2.325 million to resolve FCA allegations that

it double-billed Medicare and Medicaid for outpatient psychiatric services by, inter alia, seeking and receiving

payments for non-reimbursable costs relating to services provided by one of its outpatient clinics.4

$2.325 million

February 7, 2013 St. Joseph’s Medical Center St. Joseph’s Medical Center agreed to pay $4.9 million to resolve potential FCA liability after it disclosed that it

engaged in a practice of admitting patients for short stays – typically one or two days – that were not warranted by

the patient’s medical condition, and thereby generated a larger reimbursement than was proper for each patient.5

$4.9 million

February 22, 2013 Temple University Temple University agreed to pay $100,000 to resolve FCA allegations that it submitted claims for neurology

services that were improperly coded higher than the appropriate codes supported by the documentation for those

services.6

$100,000

March 19, 2013 Easton Hospital Easton Hospital agreed to pay $454,866 to resolve FCA allegations that it improperly billed Medicare for

evaluation and management services that were not permitted under Medicare regulations.7$454,866

March 19, 2013 University of California-

Irvine

The University of California-Irvine agreed to pay $1.2 million to resolve FCA allegations that it submitted Medicare

claims for anesthesia administered by Certified Registered Nurse Anesthetists or residents when there was no

supervisory anesthesiologist present or immediately available, in violation of federal regulations.8

$1.2 million

AppeNdix A – 2013 NotABLe SettLemeNtS

| 26

1. http://www.justice.gov/opa/pr/2013/January/13-civ-023.html.

2. http://www.justice.gov/usao/nj/Press/files/Cooper%20Settlement%20PR.html.

3. http://www.justice.gov/usao/tnm/pressReleases/2013/1-17-13.html.

4. http://www.justice.gov/usao/nys/pressreleases/February13/StLukesRooseveltSettlementPR.php.

5. http://www.justice.gov/opa/pr/2013/February/13-civ-169.html.

6. http://www.justice.gov/usao/pae/News/2013/Mar/temple_release.htm.

7. http://www.justice.gov/usao/pam/hcf.html.

8. http://www.releasewire.com/Associated-Press/99911.pdf.

DATE ENTITY FCA ALLEGATIONSSETTLEMENT AMOUNT

March 27, 2013 St. Luke’s University Health

Network, Inc.

St. Luke’s University Health Network agreed to pay $1.029 million to resolve FCA allegations that its hospitals

improperly billed Medicare for evaluation and management services that were not permitted under Medicare

regulations.9

$1.029 million

March 28, 2013 Intermountain Health Care,

Inc.

Intermountain Health Care, agreed to pay $25.5 million to resolve FCA allegations that it violated the Stark Law

by entering into employment agreements under which the physicians received bonuses that improperly took into

account the value of some of their patient referrals and entering into improper office leases and compensation

arrangements with referring physicians.10

$25.5 million

April 30, 2013 St. Vincent Healthcare and

Holy Rosary Healthcare

St. Vincent Healthcare and Holy Rosary Healthcare, agreed to pay $3.95 million to resolve FCA allegations that

they violated the Stark Law by paying several physicians incentive compensation that took into account the

value or volume of their referrals by improperly including certain designated health services in the formula for

calculating physician incentive compensation.11

$3.95 million

May 1, 2013 Adventist Health System/

West d/b/a Adventist Health

and White Memorial Medical

Center

Adventist Health System/West d/b/a Adventist Health and White Memorial Medical Center agreed to pay $14.1

million to resolve FCA allegations that they violated the Anti-Kickback Statute and the Stark Law by improperly

compensating physicians who referred patients to the hospitals by transferring assets, including medical and

non-medical supplies and inventory, in a transaction below fair market value and paying referring physicians

compensation above fair market value to provide teaching services at a residency program. Under the terms of

the agreement, White Memorial also entered a CIA with HHS-OIG.12

$14.1 million

July 1, 2013 University Medical Center

d/b/a University of Louisville

Hospital

University Medical Center d/b/a University of Louisville Hospital agreed to pay $2.8 million to resolve FCA

allegations that it submitted more than one Medicare claim for the work of certain physician assistants and

nurse practitioners. University Medical Center claimed this work on cost reports filed with Medicare while the

supervising physicians also billed and collected from Medicare for the physician assistants’ and nurse practitioners’

professional services.13

$2.8 million

July 2, 2013 Various Hospitals 55 hospitals agreed to pay $34 million to settle FCA allegations related to kyphoplasty spinal fracture treatment.

The government alleged that the hospitals submitted inflated and unnecessary bills to Medicare by treating the

procedure as an inpatient rather than an outpatient procedure.14 Currently, DOJ has settled FCA claims with more

than 100 hospitals related to kyphoplasty treatment.

$34 million

July 10, 2013 Allegiance Health and

Jackson Cardiology

Associates

Allegiance Health and Jackson Cardiology Associates agreed to pay $4 million to resolve FCA claims that

cardiologists employed by Jackson Cardiology Associates performed medically inappropriate cardiac procedures,

including invasive catheterizations, at Allegiance Health. A portion of the settlement with Allegiance Health also

covered medically unnecessary outpatient peripheral stents. Under the agreement, Allegiance Health and Jackson

Cardiology Associates entered into a five-year CIA with HHS-OIG.15

$4 million

| 27

9. http://www.justice.gov/usao/pam/hcf.html.

10. http://www.justice.gov/opa/pr/2013/April/13-civ-378.html.

11. http://www.justice.gov/opa/pr/2013/May/13-civ-495.html.

12. http://www.justice.gov/usao/cae/news/docs/2013/05-2013/05-03-13Adventist.html.

13. http://www.justice.gov/usao/kyw/news/2013/20130701-01.html.

14. http://www.justice.gov/opa/pr/2013/July/13-civ-745.html.

15. http://www.justice.gov/usao/mie/news/2013/2013_7_10_jpatel_HCF.html.


July 11, 2013 Maryland General Hospital Maryland General Hospital agreed to pay $750,000 to resolve FCA allegations that it improperly billed Medicare

for cardiac perfusion studies by routinely utilizing three separate CPT codes to bill for a single study. Even after

senior financial managers learned of the problem, the hospital allegedly failed to repay the overbilled amounts.16

$750,000

July 15, 2013 Dubuis Health System;

Southern Crescent Hospital

for Specialty Care, Inc.

Dubuis Health System and Southern Crescent Hospital agreed to pay $8 million to resolve FCA allegations that it

billed Medicare for long term acute care hospitalizations that were medically unnecessary.17$8 million

July 25, 2013 Beth Israel Deaconess

Medical Center

Beth Israel Deaconess Medical Center agreed to pay $5.3 million to resolve FCA allegations that it admitted

and billed federal healthcare programs for patients as inpatient when the patients should have been billed as

outpatient or observation status.18

$5.3 million

July 29, 2013 Shands Teaching Hospital

& Clinics Inc.; Shands

Jacksonville Medical

Center Inc.; and Shands

Jacksonville Healthcare Inc.

Shands Jacksonville Healthcare agreed to pay $26 million to resolve FCA allegations that six of its healthcare

facilities billed federal healthcare programs for patients as inpatient when the patients should have been billed as

outpatient services.19

$26 million

July 30, 2013 Northwestern University Northwestern University agreed to pay $2.93 million to resolve FCA allegations that it allowed a former

researcher and physician at the university’s cancer center to submit improper claims for reimbursement under

federal research grants for goods and services that did not meet the applicable National Institutes of Health and

government guidelines.20

$2.93 million

July 31, 2013 University of Pittsburgh

Medical Center and UPMC

VNA Home Health

University of Pittsburgh Medical Center and UPMC VNA Home Health agreed to pay $956,590 to resolve FCA

allegations resulting from a self-disclosure regarding Medicare billings for home health services that were not

supported by a documented face-to-face encounter with a physician or authorized non-physician practitioner.21

$956,590

August 28, 2013 Emory University Emory University agreed to pay $1.5 million to resolve FCA allegations that it billed Medicare and Medicaid for

oncology clinical trial services that were already reimbursed by the sponsor of the clinical trial.22

$1.5 million

August 29, 2013 Wahiawa General Hospital Wahiawa General Hospital agreed to pay $451,428 to resolve FCA allegations that it billed federal government

healthcare programs for services provided by residents without proper documentation of the teaching faculty’s

supervision of the residents or of the coding of services performed.23

$451,428

September 10, 2013 Hutchinson Regional

Medical Center

Hutchinson Regional Medical Center agreed to pay $853,651 to resolve FCA allegations that it billed Medicare for

hyperbaric oxygen wound therapy services that were not medically necessary, lacked supporting documentation

of medical necessity, or resulted from kickback arrangements between the hospital, at least one of its physicians,

and the supplier of oxygen chambers. As part of the settlement, Hutchinson entered into a five-year CIA with

HHS-OIG.24

$853,651

| 28

16. http://www.law360.com/articles/464573.


18. http://www.justice.gov/usao/ma/news/2013/July/BethIsraelDeaconessMedicalCenterSettlementPR.html.

19. http://www.justice.gov/opa/pr/2013/August/13-civ-936.html.

20. http://www.justice.gov/usao/iln/pr/chicago/2013/pr0730_01.html.

21. http://www.justice.gov/usao/paw/news/2013/2013_july/2013_07_31_01.html.

22. http://www.justice.gov/usao/gan/press/2013/08-28-13b.html.

23. http://www.justice.gov/usao/hi/news/1308wgh.html.

24. http://www.justice.gov/usao/ks/PressReleases/2013/Sept2013/Sept%2017a.html.


September 12, 2013 Forest Park Medical Center

LLC

Forest Park Medical Center agreed to pay $258,600 to resolve criminal and FCA allegations that it paid kickbacks

to physicians in exchange for the referral of Tricare patients. The physician-owned hospital also entered into a

non-prosecution agreement, which included a 24-month federal monitoring program.25

$258,600

October 2, 2013 Tuomey Healthcare System,

Inc.

Although not a settlement, a jury awarded the United States a significant FCA judgment resulting. On October

2, 2013, the U.S. District Court for the District of South Carolina corrected the sum of a damages award and civil

monetary penalties – from $276 million to $237 million – resulting from a jury verdict in May 2013 against Tuomey

Healthcare based on allegations that Tuomey entered into part-time employment agreements with several

physicians that were in excess of the fair market value of their services in the hope that the physicians would refer

outpatient procedures to Tuomey, in violation of the Stark Law.26

$237 million

(damages and civil

penalties)

October 3, 2013 Medcath Corporation Medcath announced that it agreed to pay $6.1 million to resolve any civil or administrative claims, including FCA

claims, in connection with an industry-wide investigation of allegations that certain hospitals, including several of

Medcath’s former hospitals, were billing Medicare for implantable cardioverter defibrillators that were utilized in

violation of Medicare coverage guidelines.27

$6.1 million

October 30, 2013 SSM Health Care of

Oklahoma, Inc.

SSM Health Care, which owns and operates St. Anthony’s Hospital in Oklahoma City, agreed to pay $475,000 to

resolve FCA allegations that it billed Medicare for inpatient services that should have been billed as outpatient

services.28

$475,000

December 16, 2013 Adventist Health System/

Sunbelt Inc.

The parties in the qui tam styled U.S. ex rel. Dittman v. Adventist Health System/Sunbelt Inc. filed a notice of settlement

in the Middle District of Florida resolving FCA allegations that Adventist unbundled payments for bundled medical

services, improperly utilized a drug pricing code, and routinely billed for services not provided. The United States

previously declined intervention in the action.29

Unknown

December 18, 2013 Tenet Healthcare

Corporation

The parties in the qui tam styled U.S. ex rel. Osheroff v. Tenet Healthcare Corporation filed a joint stipulation of

dismissal in the Southern District of Florida, indicating that the parties have reached a settlement in this action

involving FCA allegations that Tenet charged below fair market value rates to physicians for the lease of space in

Tenet’s medical office buildings for the purpose of inducing or rewarding physicians referrals, in violation of the

Stark Law. The United States previously declined intervention in the action.

Unknown

December 31, 2013 Sisters of Charity

Leavenworth Health System;

St. James Healthcare

On December 31, 2013, Montana-based hospital St. James Healthcare and its parent company, Sisters of Charity

Leavenworth Health System, agreed to pay $3.85 million to resolve allegations that they violated the Anti-Kickback

Statute, Stark Law, and FCA by providing improper financial incentives to physicians and physician groups that were

involved in a joint venture with St. James to own and operate a medical office building. The incentives included a

payment to the joint venture that increased the physicians’ and physicians groups’ share values in the joint venture

and lowered the lease rates for physicians renting space in the building below fair market value. Other incentives

included below fair market value ground lease rates and arrangements related to shared facilities, use, and

maintenance. St. James self-disclosed the allegedly improper physician incentives after they were discovered by an

internal compliance audit and reviewed by an outside compliance firm.30

$3.85 million

| 29

25. http://www.justice.gov/usao/txn/PressRelease/2013/SEP2013/sep12FPMC_sett.html.

26. http://www.law360.com/articles/477736/hospital-to-pay-237m-for-fraud-after-clerical-error-fixed.

27. http://phx.corporate-ir.net/phoenix.zhtml?c=129804&p=irol-newsArticle&ID=1860046&highlight=.

28. http://www.justice.gov/usao/okw/news/2013/2013_10_30_2.html.

29. http://www.law360.com/articles/496907/adventist-health-settles-whistleblowers-er-billing-claims.

30. http://www.justice.gov/opa/pr/2013/December/13-civ-1369.html.

heALth pLANSDATE ENTITY FCA ALLEGATIONS

SETTLEMENT AMOUNT

August 10, 2012 SCAN Health Plan On August 10, 2012, SCAN Health Plan agreed to pay $320 million to resolve FCA allegations that it artificially

caused an inflation of some of its patients’ risk adjustment scores and that it knowingly retained payments at rates

for long-term-care-certified patients that were over the legal ceiling set by state statute and regulations.31

$320 million

| 30

31. http://www.justice.gov/usao/cac/Pressroom/2012/112.html.

LoNg-term cAre providerSDATE ENTITY FCA ALLEGATIONS

SETTLEMENT AMOUNT

December 21, 2012 GGNSC Holdings, LLC GGNSC Holdings, LLC, agreed to pay $613,300 to resolve FCA allegations that it provided nursing home residents

with inadequate and worthless monitoring, documentation, and prevention and treatment of wounds. Under the

terms of the agreement, GGNSC also entered a CIA with HHS-OIG.32

$613,300

February 13, 2013 Fairfax Nursing Center Fairfax Nursing Center, a Virginia-based skilled nursing facility, agreed to pay $700,000 to resolve FCA allegations

that it provided and charged for excessive, medically unnecessary, or otherwise non-reimbursable physical,

occupational, and speech therapy services to 37 Medicare beneficiaries. Allegedly, the therapy services often were

excessive, duplicative, performed without clear goals or direction, and, in some instances, performed primarily to

capture higher reimbursement rates.33

$700,000

February 28, 2013 Techota, LLC Techota, LLC, a home healthcare provider, agreed to pay $150,000 to resolve FCA allegations that it billed

Medicare for home health services that were not eligible for reimbursement because the services were not

medically reasonable and necessary or were not provided under a valid plan of care. Under the settlement,

Techota entered a CIA with HHS-OIG.34

$150,000

March 4, 2013 Grace Healthcare, LLC, and

Grace Ancillary Services,

LLC

Grace Healthcare, LLC, and Grace Ancillary Services, LLC, agreed to pay $2.7 million to resolve FCA allegations

that it knowingly submitted or caused the submission of false claims for medically unreasonable and unnecessary

rehabilitation therapy. Under the terms of the agreement, Grace Healthcare and Grace Ancillary Services also

entered a CIA with HHS-OIG.35

$2.7 million

March 20, 2013 Hospice of Arizona

L.C.; American Hospice

Management LLC; American

Hospice Management

Holdings LLC

Hospice of Arizona L.C., American Hospice Management LLC, and American Hospice Management Holdings

LLC agreed to pay $12 million to resolve FCA allegations that they submitted claims to Medicare for ineligible

hospice services provided to patients who did not need end of life care or for whom the hospice billed at a higher

reimbursement rate than it was entitled. As a part of the settlement, American Hospice Management Holdings

entered into a CIA with HHS-OIG which provides for procedures and reviews to be put in place to avoid and

promptly detect similar conduct.36

$12 million

May 21, 2013 U.S. Renal Care U.S. Renal Care agreed to pay $7.3 million to resolve FCA allegations that Dialysis Corporation of America,

a company U.S. Renal Care previously acquired, billed Medicare for more of an anemia drug than it actually

administered. The company allegedly billed for 10-11% overfill whenever it administered the drug, but it was not

able to withdraw and administer 10-11% overfill in every administration because of the types of syringes the

company used.37

$7.3 million

June 18, 2013 Parkshore Home

Health Care, LLC, d/b/a

Renaissance Home Health

Care, Inc.

Parkshore Home Health Care, LLC, d/b/a Renaissance Home Health Care, Inc., agreed to pay $1 million to resolve

FCA allegations that it provided unqualified home health aides to home health agencies, which in turn sent these

unqualified aides into the homes of Medicaid recipients and billed Medicaid for their services.38

$1 million

| 31

32. http://www.justice.gov/usao/gan/press/2013/01-02-13.html.


34. http://www.justice.gov/usao/alm/press/2013/2013_03_13_techota.html.

35. http://www.justice.gov/usao/tne/news/2013/March/030813%20Grace%20Healthcare%20Settlement.html.

36. http://www.justice.gov/opa/pr/2013/March/13-civ-326.html.


38. http://www.justice.gov/usao/nye/pr/2013/2013jun18.html.


July 22, 2013 Hernando-Pasco Hospice,

Inc. d/b/a HPH Hospice

HPH Hospice agreed to pay $1 million to resolve FCA allegations that it submitted claims to Medicare for ineligible

hospice services provided to patients who did not need end of life care or for whom the hospice billed at a higher

reimbursement rate than it was entitled. HPH Hospice also purportedly provided kickbacks through free services

to skilled nursing facilities in exchange for patient referrals. As part of the agreement, HPH Hospice entered into

a five-year CIA with HHS-OIG.39

$1 million

October 24, 2013 Hospice of the Comforter,

Inc.

The Hospice of the Comforter (HOTC) agreed to pay $3 million to resolve FCA allegations that billed Medicare

for patients that were not terminally ill as a result of instructing its staff to admit patients without regard to

their Medicare eligibility, falsifying medical records for ineligible patients, employing field nurses without hospice

training, delaying discharge for patients when they became ineligible for the Medicare hospice benefit, and

implementing procedures to limit physicians’ roles in examining whether a patient is terminally ill. As part of

the agreement, HOTC entered into a five-year CIA with HHS-OIG.40

$3 million

November 19, 2013 The Ensign Group, Inc. The Ensign Group agreed to pay $48 million to resolve FCA allegations that six of its California skilled nursing

facilities submitted claims to Medicare for medically unnecessary physical, occupational, and speech therapy

services. Ensign purportedly created a corporate culture that improperly incentivized therapists to increase their

therapy services to meet Medicare revenue targets that were set without regard to the therapy needs of individual

patients. As part of the agreement, The Ensign Group entered into a five-year CIA with HHS-OIG.41

$48 million

| 32

39. http://www.justice.gov/usao/flm/press/2013/july/20130722_HPH.html.

40. http://www.justice.gov/opa/pr/2013/November/13-civ-1179.html.


phArmAceUticAL ANd deviceDATE ENTITY FCA ALLEGATIONS

SETTLEMENT AMOUNT

March 5, 2013 Par Pharmaceutical

Companies Inc.

Par Pharmaceutical Companies Inc. agreed to pay $45 million to resolve criminal and FCA allegations that it

engaged in off-label marketing of a prescription drug approved by the FDA to treat anorexia, cachexia, or other

significant weight loss suffered by patients with AIDS. Par Pharmaceutical did not include in its application to the

FDA that it also intended the drug to treat non-AIDS-related geriatric wasting. The civil portion of the settlement

totaled $22.5 million. As a part of the agreement, Par Pharmaceutical entered into a CIA with HHS-OIG.42

$45 million

March 8, 2013 Corning Incorporated Corning Incorporated agreed to pay $5.65 million to resolve FCA allegations that its life sciences division failed

to meet its contractual obligations to provide the General Services Administration (“GSA”) with current, accurate,

and complete information about its commercial sales practices, including discounts offered to other customers,

as required to participate in GSA’s Multiple Award Schedule program. Corning allegedly knowingly made false

statements to GSA about its sales practices and discounts for its commercial customers and failed to pass those

discounts on to government customers, in violation of the price reduction clause of its GSA contract.43

$5.65 million

April 16, 2013 Amgen Inc. Amgen Inc., a biotechnology company, agreed to pay $24.9 million to resolve FCA allegations

that it paid kickbacks to long-term care pharmacy providers in return for their implementing programs designed

to switch Medicare and Medicaid beneficiaries from a competitor drug to one manufactured by Amgen. The

kickbacks took the form of performance-based rebates tied to market-share or volume thresholds.44

$24.9 million

May 9, 2013 Ranbaxy USA Inc. Ranbaxy USA Inc., a subsidiary of Indian generic pharmaceutical manufacturer Ranbaxy Laboratories Ltd.,

agreed to pay $500 million to resolve criminal and FCA allegations that it introduced batches of adulterated

drugs into interstate commerce; failed to maintain complete testing records; failed to implement an adequate

stability program; failed to timely file field alerts for batches of drugs that had failed certain tests; and made false,

fictitious, and fraudulent statements to the FDA in Annual Reports regarding the dates of stability tests conducted

on certain batches of drugs.45

$500 million

May 13, 2013 C.R. Bard Inc. C.R. Bard Inc., a corporation that develops, manufacturers, and markets medical products, agreed to pay $48.26

million to resolve FCA allegations that it provided illegal remuneration to customers and physicians to induce

them to purchase Bard’s brachytherapy seeds, in violation of the Anti-Kickback Statute. The illegal remuneration

took the form of grants, guaranteed minimum rebates, conference fees, marketing assistance and free medical

equipment. As a part of the settlement, Bard has agreed to refine its written policies and procedures and to

monitor medical education grants to ensure compliance with Federal requirements.46

$48.26 million

May 16, 2013 International Rehabilitative

Sciences d/b/a RS Medical

International Rehabilitative Sciences d/b/a RS Medical, a durable medical equipment company, agreed to pay

$1.2 million to resolve FCA allegations that it submitted claims to Medicare for various pieces of medical

equipment that lacked physician orders, lacked the required supporting documentation, or lacked medical

necessity. As a part of the agreement, International Rehabilitative Sciences entered into a CIA with HHS-OIG.47

$1.2 million

| 33






47. http://www.justice.gov/usao/sc/news/5.16.13.rsmedical.html.


May 24, 2013 ISTA Pharmaceuticals, Inc. ISTA Pharmaceuticals, Inc., agreed to pay $33.5 million to resolve criminal and FCA allegations that it introduced

a misbranded drug into interstate commerce and violated the Anti-Kickback Statute. ISTA allegedly used

continuing medical education programs and post-operative instruction sheets to promote the drug for uses

unapproved by the FDA, and it paid physicians in order to induce them to prescribe the drug.48

$33.5 million

June 28, 2013 TranS1 Inc. TranS1 Inc., a medical device manufacturer now known as Baxano Surgical Inc., agreed to pay $6 million to resolve

FCA allegations that it caused healthcare providers to submit claims with incorrect diagnosis or procedure codes

for minimally-invasive spine fusion surgeries using one of its systems and that it paid illegal remuneration to

certain physicians for participating in speaker programs and consultant meetings intended to induce them to use

TranS1 products, in violation of the Anti-Kickback Statute.49

$6 million

July 3, 2013 Mallinckrodt LLC Mallinckrodt LLC agreed to pay $3.5 million to resolve FCA allegations that the pharmaceutical manufacturer

paid physician consultants to participate in clinical trials, speaker programs, and meetings, or to complete specific

forms, for the purpose of inducing them to prescribe the company’s drugs.50

$3.5 million

July 9, 2013 Omnicare Inc. Omnicare Inc. agreed to pay an undisclosed amount to resolve FCA allegations that it improperly paid kickbacks

as part of a $25 million purchase of pharmaceutical benefits manager Total Pharmacy Services LLC in 2004.

In November 2009, Omnicare agreed to pay $98 million to settle other FCA claims arising out of the same

transaction.51

Undisclosed

July 30, 2013 Wyeth Pharmaceuticals Inc. Wyeth Pharmaceuticals Inc. agreed to pay $490.9 million to resolve criminal and FCA allegations that it unlawfully

marketed its immunosuppressive drug Rapamune for uses not approved as safe and effective by the FDA. $257.4

million of the settlement was allocated to resolving the civil FCA claims. Pfizer, Inc., who acquired Wyeth in 2009,

is currently under a CIA with HHS-OIG covering former Wyeth employees who now perform sales and marketing

functions at Pfizer.52

$490.9 million

August 23, 2013 Pfizer, Inc. Pfizer, Inc. agreed to pay an undisclosed amount to resolve a qui tam action, in which the government declined

to intervene in 2005, involving allegations that Pharmacia Corp. (now part of Pfizer) marketed the human

growth hormone Gentropin for uses not approved by the FDA and provided kickbacks to physicians that caused

pharmacies to submit false claims to Medicaid programs. This matter settled while it was pending before the U.S.

Court of Appeals for the First Circuit for the second time after a federal district judge granted Pfizer’s motion

to dismiss (for a second time). Pharmacia entered into a deferred prosecution agreement in 2007 requiring it to

pay $34.7 million to resolve criminal allegations that it violated the Anti-Kickback Statute through these allegedly

illegal Gentropin payments.53

Undisclosed

October 17, 2013 Boston Scientific Corp.;

Cardiac Pacemakers, Inc.;

Guidant LLC; Guidant Sales

LLC

Boston Scientific Corporation and its subsidiaries, including Guidant LLC, agreed to pay $30 million to resolve

FCA allegations that they sold defective implantable cardiac defibrillators to Medicare beneficiaries, even after

becoming aware of the defects. Boston Scientific acquired Guidant in 2006, after the alleged misconduct

occurred. In February 2010, Guidant pleaded guilty to criminal charges related to the defective devices for

misleading the FDA and failing to provide a labeling change to the FDA.54

$30 million

| 34



50. http://www.justice.gov/usao/can/news/2013/2013_07_18_mallinckrodt.settled.press.html.

51. http://www.law360.com/health/articles/456561?nl_pk=5ada6078-fca0-4976-b2f3-e4e46e7845c2&utm.


53. http://www.law360.com/articles/467464/pfizer-settles-former-exec-s-fca-suit-in-1st-circ.

54. http://www.justice.gov/opa/pr/2013/October/13-civ-1107.html.

55. http://www.justice.gov/usao/ks/PressReleases/2013/Oct2013/Oct22d.html.


October 22, 2013 Global Medical Direct, LLC;

Global Medical, Inc.; Robert

Shea; Mark Franz

Global Medical Direct, Global Medical, and their owners, Robert Shea and Mark Franz, agreed to pay a combined

$12 million to resolve criminal and civil FCA allegations that Shea and Franz caused the mail-order diabetic supply

companies to enter marketing contracts with insurance brokerage and other companies with customer pools likely

to include a large number of diabetes patients and paid the companies based on the number of patient referrals

for diabetic supplies. As part of the settlement, Shea and Franz received 20-year exclusions from participation in

federal healthcare programs.55

$12 million

October 23, 2013 Omnicare Inc. Omnicare agreed to pay $120 million to resolve FCA allegations that it engaged in a “swapping” kickback scheme

whereby it provided discounts to nursing homes on Medicare Part A prescription drugs in exchange for the

referral of Medicare Part D patients. The settlement agreement still must be approved by the DOJ, which initially

declined to intervene in the matter.56

$120 million

December 2, 2013 Caremark LLC Caremark agreed to pay $4.25 million to resolve FCA allegations that it failed to reimburse Medicaid programs in

five states for the prescription drug costs of Medicaid beneficiaries, who

also were eligible for drug benefits under private health plans.57

$4.25 million

| 35

55. http://www.justice.gov/usao/ks/PressReleases/2013/Oct2013/Oct22d.html.

56. http://www.complianceweek.com/omnicare-agrees-to-pay-120m-for-violations-of-false-claims-act/article/318503/.


phySiciANS ANd other providerSDATE ENTITY FCA ALLEGATIONS

SETTLEMENT AMOUNT

January 28, 2013 James P. Ralabate, M.D.;

Primary Care Associates,

P.C.

James P. Ralabate, M.D. and his professional corporation agreed to pay $700,000 to resolve FCA allegations

that he billed Medicare for high-level physician services that were medically unnecessary or lacked adequate

supporting documentation. In addition, Dr. Ralabate allegedly billed Medicare for nursing home services for

patients who were not actually in nursing homes at the time, but were transferred to local hospitals for treatment.

As part of this agreement, Dr. Ralabate entered into a CIA with HHS-OIG.58

$700,000

February 11, 2013 Steven J. Wasserman, M.D. Steven J. Wasserman, M.D., a dermatologist practicing in Florida, agreed to pay $26.1 million to resolve FCA

allegations that he accepted illegal kickbacks from a pathology laboratory and billed the Medicare program for

medically unnecessary services. Dr. Wasserman allegedly sent biopsy specimens for Medicare beneficiaries to a

laboratory for testing, and the laboratory allegedly provided him a diagnosis on a pathology report that included

a signature line to make it appear to Medicare that he had performed the diagnostic work. Further, Dr. Wasserman

substantially increased the number of skin biopsies he performed on Medicare patients, thus increasing the

referral business for the laboratory, and performed thousands of unnecessary adjacent tissue transfers on

Medicare beneficiaries. The settlement is one of the largest ever with an individual under FCA.59

$26.1 million

February 25, 2013 Williston Rescue Squad Inc. Williston Rescue Squad Inc. agreed to pay $800,000 to resolve FCA allegations that it billed Medicare for routine,

non-emergency ambulance transports that were not medically necessary and created false documents to make

the transports appear to meet the Medicare requirements. Under the terms of the agreement, Williston Rescue

Squad also entered a CIA with HHS-OIG.60

$800,000

April 2, 2013 Prevea Clinic, Inc. Prevea Clinic, Inc., a group of clinics that employ physicians and other healthcare providers, agreed to pay

$94,000 to resolve FCA allegations that it submitted false claims to Medicare for the services of an assistant

surgeon who lacked required credentials during neurosurgery procedures.61

$94,000

April 10, 2013 T. Hemanth Prabhakar

Rao, M.D.; The Neurological

Institute, P.A.

Dr. Rao and The Neurological Institute, of which Rao is the sole owner and operator, agreed to pay $2 million to

resolve FCA allegations that Dr. Rao billed Medicare for intravenous immunoglobulin therapy services that failed

to meet Medicare’s supervision regulations. As part of the agreement, Dr. Rao entered into a one-year CIA with

HHS-OIG.62

$2 million

April 25, 2013 Louis Francis Curte Louis Francis Curte, the former owner of Wilkesboro Clinical Laboratory, agreed to pay $300,000 to resolve FCA

allegations that he and his company violated the Stark Law and that they billed Medicare for identification and

susceptibility tests, when, in fact, no such tests were performed and even when the initial testing indicated that

no pathogen was actually present in the specimen.63

$300,000

| 36

58. http://www.justice.gov/usao/ct/Press2013/20130131.html.



61. http://www.justice.gov/usao/wie/news/2013/pr20130402_Prevea_Clinic_Settlement.html.

62.http://healthlawrc.bna.com/hlrc/4206/split_display.adp?fedfid=31220205&vname=hlreref1000&fn=32390401&jd=a0d9m7b4u8&split=0;

http://oig.hhs.gov/fraud/cia/agreements/T_Hemanth_Prabhakar_Rao_04092013.pdf.

63. http://www.justice.gov/usao/ncw/pressreleases/2013/Charlotte-2013-04-25-curte.html.


May 17, 2013 Las Vegas Urology, LLP Las Vegas Urology, LLP, agreed to pay $1 million to resolve FCA allegations that it improperly billed Medicare

and other federal healthcare insurance programs for various urology services. As a part of the settlement, the

government agreed not to seek to exclude Las Vegas Urology from federal healthcare programs, and Las Vegas

Urology entered into a CIA with HHS-OIG.64

$1 million

June 6, 2013 Dennis Schuller, D.D.S. Dennis Schuller, D.D.S., agreed to pay $100,000 to resolve FCA allegations that he improperly billed Medicare for

certain x-rays and exams, medically unnecessary procedures, and other medically unnecessary items.65

$100,000

June 20, 2013 Alfred Chan, M.D.,

Judy Chan

Alfred Chan, M.D., and his wife agreed to pay $3.1 million to resolve FCA allegations that they routinely billed

federal healthcare programs for at least twice the amount of cancer treatment drugs actually administered to Dr.

Chan’s patients. To conceal the fraud, they subsequently destroyed documents and falsified medical records.66

$3.1 million

July 2, 2013 William R. Kincaid, M.D.;

Millard R. Lamb, M.D.; and

Charles O. Famoyin, M.D.

William R. Kincaid, M.D.; Millard R. Lamb, M.D.; and Charles O. Famoyin, M.D., former partners in East Tennessee

Hematology-Oncology Associates, P.C., d/b/a McLeod Cancer and Blood Center, agreed to pay $4.25 million to

resolve FCA allegations that the McLeod Cancer and Blood Center administered and submitted Medicare claims

for misbranded, unapproved chemotherapy drugs. These drugs were manufactured in foreign facilities not

registered with the FDA, and some of their labels were in foreign languages or lacked dosage information.67

$4.25 million

July 2, 2013 Sound Inpatient Physicians

Inc.

Sound Inpatient Physicians Inc., a provider of hospitalists and other physicians to hospitals and other medical

facilities, agreed to pay $14.5 million to resolve FCA allegations that it submitted inflated Medicare claims on

behalf of its hospitalist employees for higher and more expensive levels of service than were documented by

hospitalists in patient medical records.68

$14.5 million

July 18, 2013 Park Avenue Medical

Associates, P.C.; Park

Avenue Health Care

Management, LLC; and

Park Avenue Health Care

Management, Inc.

Park Avenue Medical Associates, P.C. and its affiliated companies (“PAMA”) agreed to pay $1 million to resolve

FCA allegations that they billed for psychiatric diagnostic examinations and psychotherapy services in violation of

certain Medicare rules and policies. As part of the agreement, PAMA entered into a five-year CIA with HHS-OIG. 69

$1 million

July 25, 2013 Richard S. Obedian, M.D. Richard S. Obedian, M.D., agreed to pay $388,000 to resolve FCA allegations that he submitted claims to Medicare

for kyphoplasty treatment using incorrect billing codes assigned to more invasive and complicated surgeries.70

$388,000

July 30, 2013 Dr. Ishtiaq Malik; Ishtiaq

Malik M.D., P.C.; and

Advanced Nuclear

Diagnostics

Although representing a judgment and not a settlement, on July 30, 2013, the U.S. District Court for the

District of Columbia entered a sizable judgment against Dr. Ishtiaq Malik; Ishtiaq Malik M.D., P.C.; and Advanced

Nuclear Diagnostics for more than $17 million for submitting false nuclear cardiology claims to federal and state

healthcare programs. The FCA allegations focused on Dr. Malik’s inappropriate claims for myocardial perfusion

studies, commonly referred to as nuclear stress tests, claiming that he and his companies double-billed for multi-

day nuclear stress test studies. 71

$17 million

(judgment)

| 37

64. http://www.justice.gov/usao/nv/news/2013/20130521_lvu.html.

65. http://www.justice.gov/usao/ian/news/2013/jun_13/6_6_13_Schuller.html.

66. http://www.justice.gov/usao/waw/press/2013/June/chan.html.

67. http://www.justice.gov/usao/tne/news/2013/July/070213%20Johnson%20City%20Doctors%20Settlement.html.


69. http://www.justice.gov/usao/nys/pressreleases/July13/ParkAveMedicalAssociatesSettlementPR.php.




August 2013 Babubhai Rathod Babubhai Rathod agreed to pay $1 million to resolve civil FCA allegations that he directed an “upcoding” scheme

and a scheme to pay physicians for referring patients to medical clinics, physical therapy clinics, and a home

healthcare agency. Rathod owned and operated this network of affiliated companies. Rathod agreed to a 20-

year exclusion from federal healthcare programs as part of the settlement. In a parallel criminal proceeding,

Rathod was sentenced to four years in prison.72

$1 million

August 9, 2013 Bostwick Laboratories Bostwick Laboratories agreed to pay $503,668 to resolve FCA allegations that its sales representatives made

illegal payments to physicians to induce them to enroll patients in a clinical study in order to utilize Bostwick’s

laboratory testing services, some of which were not medically necessary.73

$503,668

August 20, 2013 Planned Parenthood Gulf

Coast

Planned Parenthood Gulf Coast agreed to pay $4.3 million to resolve FCA allegations that it overbilled several

government healthcare programs for additional testing and services that were not medically necessary, not

medically indicated, or not actually provided.74

$4.3 million

August 27, 2013 Imagimed LLC Imagimed LLC and its former owners and former chief radiologist agreed to pay $3.57 million to resolve FCA

allegations that Imagimed billed federal healthcare programs for MRI services performed with a contrast dye

without the direct supervision of a qualified physician, in violation of federal regulations, and for services referred

to Imagimed by physicians with whom the company had improper financial relationships.75

$3.57 million

September 13, 2013 Gulf Region Radiation

Oncology Centers Inc.; Gulf

Region Radiation Oncology

MSO LLC; Sacred Heart

Health Systems Inc.; West

Florida Medical Center

Clinic P.A.; Emerald Coast

Radiation Oncology Center

LLC

Radiation oncology providers in Pensacola, FL agreed to pay $3.5 million to resolve FCA allegations that they

improperly billed for services that were not rendered, already billed, upcoded, or performed by clinical staff not

supervised by a physician as required by federal law. As part of the agreement, Gulf Region Radiation Oncology

Centers entered into a three-year CIA with HHS-OIG.76

$3.5 million

September 18, 2013 Hee Jung Mun; GreatCare

Home Health Agency

A federal district judge issued a $14.9 million default judgment against Hee Jung Mun, the former owner of

GreatCare Home Health Agency, concluding a civil FCA case alleging that Mun and GreatCare operated a

fraudulent scheme targeted at the elderly involving kickbacks to physicians for patient referrals, payments to

patients to sign up for medically unnecessary home health services, billing Medicare for ineligible home health

patients, creating false medical records, and upcoding. In January 2012, Mun pleaded guilty to defrauding

Medicare in a parallel criminal proceeding.77

$14.9 million

(default judgment)

September 25,

2013

Jun Xu, M.D.; Rehabilitation

Medicine and Acupuncture

Center M.D., LLC

Jun Xu and Rehabilitation Medicine and Acupuncture Center agreed to pay $300,000 to resolve FCA allegations

that they billed Medicare for physical therapy services that were medically unnecessary or performed in violation

of Medicare regulations – specifically, physical therapy services provided by message therapists and individual

therapy services that were actually conducted in a group setting.78

$300,000

| 38

72. http://www.justice.gov/usao/miw//news/2013/2013_0813_BRathod.html.

73. http://www.justice.gov/usao/nye/pr/2013/2013aug20a.html.

74. http://www.justice.gov/usao/txe/News/2013/edtx-settlement-plan-081613.html.


76. http://www.justice.gov/opa/pr/2013/September/13-civ-1027.html.

77. http://www.justice.gov/usao/cac/Pressroom/2013/116.html.

78. http://www.justice.gov/usao/ct/Press2013/20131018-1.html.

| 39


September 25,

2013

Kan-Di-Ki LLC d/b/a

Diagnostic Laboratories and

Radiology

Diagnostic Laboratories and Radiology agreed to pay $17.5 million to resolve FCA allegations that it paid kickbacks

in the form of deep discounts for less profitable mobile diagnostic services to skilled nursing facilities in exchange

for the referral of more lucrative outpatient services.79

$17.5 million

September 27, 2013 Winter Park Urology

Associates, P.A.

Winter Park Urology Associates reached an agreement with a qui tam relator for an undisclosed amount to

resolve FCA allegations that it billed Medicare for radiation therapy treatments without proper supervision from

radiation oncologists rendering the procedures medically unnecessary and in violation of Medicare regulations.80

Undisclosed

October 2, 2013 M. Scott Ellender, M.D. M. Scott Ellender, M.D., an optometrist with Budget Optical, agreed to pay $283,499 to resolve allegations that he

submitted improper claims to federal programs for bifocal lenses, trifocal lenses and new patient visits, and for

medically unnecessary exams. As part of the settlement agreement, Ellender and Budget Optical have entered

into a CIA with HHS-OIG.81

$283,499

October 4, 2013 Hafeez Kahn, M.D.; U.S. Care

Pain Clinic LLC; U.S. Care,

Inc.

Hafeez Kahn, M.D. and two corporations he owned settled allegations that he improperly billed Medicare and

Medicaid for services never performed and overbilled the government programs for other services to patients.82

$1.2 million

October 18, 2013 Siouxland Community

Health Center

Siouxland Community Health Center agreed to pay $200,000 to resolve FCA allegations that it improperly billed

Iowa Medicaid for dental outreach services performed on children that were not eligible for the service.83

$200,000

November 6, 2013 Sabine Optical Laboratories,

Inc. d/b/a The Vision Center;

Carl Carnaggio, M.D.; Carl

Carnaggio, Jr., M.D.; Lori

Carnaggio; Cypress Optical

Laboratory, LLC

Sabine Optical Laboratories agreed to pay $1.2 million to resolve FCA allegations that it billed Medicaid for

services provided by an unauthorized provider using the Medicaid provider number of a different provider, for

worthless services based on the number of Medicaid patients being seen in a single day, for services never

performed, and for lenses that were never made. Under the agreement, Sabine also entered into a three-year

CIA with HHS-OIG.84

$1.2 million

November 18, 2013 FILYN Corporation d/b/a

Lynch Ambulance

Lynch Ambulance agreed to pay $3.05 million to resolve FCA allegations that it billed federal healthcare programs

for ambulance transport of patients who were not “bed-confined” or whose transports otherwise were medically

unnecessary. As part of the agreement, Lynch Ambulance agreed to operate under a five-year CIA.85

$3.05 million

November 21, 2013 Vantage Oncology LLC Vantage Oncology agreed to pay $2.08 million to resolve FCA allegations that it improperly billed Medicare for

radiation oncology services by double billing, overbilling, billing for services without supporting documentation,

and billing for services without the requisite physician supervision.86

$2.08 million

79. http://www.justice.gov/opa/pr/2013/September/13-civ-1068.html.

80. http://www.bizjournals.com/orlando/blog/2013/09/20-million-whistleblower-lawsuit.html?page=all.

81. http://legalnewsline.com/news/federal-government/244592-s-d-ag-announces-settlement-with-optometrist.

82. http://www.justice.gov/usao/ri/news/2013/oct2013/kahn.html.

83. http://www.justice.gov/usao/ian/news/2013/oct_13/10_18_13_SCHC.html.

84. http://www.justice.gov/usao/lam/news/2013/pr2013051.html.

85. http://www.fbi.gov/losangeles/press-releases/2013/orange-county-ambulance-company-pays-more-than-3-million-to-settle-allegations-that-it-overbilled-federal-health-care-programs.


| 40


November 21, 2013 Edward Hamilton, M.D.;

Centennial Pediatrics

Edward Hamilton, M.D. entered into a settlement and plea agreement to resolve civil and criminal FCA allegations

that he billed – through Centennial Pediatrics – newborn hearing screenings and pediatric urinalysis as more

comprehensive tests when in fact they lacked the equipment necessary to perform the higher-billed tests.

Centennial Pediatrics joined the civil settlement. In total, to resolve the civil and criminal FCA allegations, Dr.

Hamilton and Centennial Pediatrics paid $1.6 million. Pursuant to the criminal plea and civil settlement, Hamilton

was excluded from participation in all federal healthcare programs for 20 years and required to divest himself of

ownership of Centennial Pediatrics.87

$1.6 million

November 22, 2013 Lymphedema & Wound Care

Institute of Texas Inc.

Lymphedema & Wound Care Institute and its affiliates agreed to pay $4.3 million to resolve FCA allegations that

it billed for physical therapy services provided by unqualified therapists and for pneumatic pumps that were

not medically necessary or sold to patients but never actually provided to them. Pursuant to the agreement,

the institute, which runs eight rehabilitation clinics in Texas, agreed to operate under a five-year CIA, and the

institute’s founder and CEO agreed to be barred from participating in federal healthcare programs for 10 years.88

$4.3 million

December 13, 2013 Ravi Sharma, M.D.; Premier

Vein Centers; Life’s New

Image

Ravi Sharma, M.D. and two Florida-based clinics owned and operated by Dr. Sharma agreed to pay $400,000

to resolve FCA allegations that they knowingly billed Medicare for vein injections and physician office visits

performed by unqualified personnel and for medically unnecessary procedures. As part of the settlement, Dr.

Sharma entered into a three-year CIA with HHS-OIG.89

$400,000

December 19, 2013 Elie H. Korban, M.D. Elie H. Korban, M.D., agreed to pay $1.15 million to resolve FCA allegations that he billed Medicare and Medicaid for

medically unnecessary cardiac stent procedures and for services performed by substitute doctors when he was

not able to perform the services himself. The qui tam lawsuit was originally brought against two West Tennessee

hospitals, their respective CEOs and a radiologist, in addition to Korban. The government intervened only as to

Korban. As a part of the agreement, Korban entered into a CIA with HHS-OIG.90

$1.15 million

December 23, 2013 Rural/Metro Corporation Rural/Metro Corporation agreed to pay more than $2.8 million to resolve FCA allegations that various ambulance

companies – owned and operated by Rural/Metro – billed Medicare for transporting patients from one hospital to

another on an emergency basis when the calls were

not actually emergencies.91

$2.802 million

87. http://www.justice.gov/usao/tnm/pressReleases/2013/11-22-13.html.

88. http://www.justice.gov/usao/txs/1News/Releases/2013%20December/131202%20-%20Morgan%20et%20al.html.



91. http://www.justice.gov/usao/az/press_releases/2013/PR_12262013_Rural_Metro.html.

iNterveNed cASeS (prior to SettLemeNt) DATE OF INTERVENTION

CASE STYLE FCA ALLEGATIONS STATUS

April 23, 2013 United States v. Novartis Pharmaceuticals Corp., No. 11-8196

(S.D.N.Y.)

The lawsuit, initiated in November 2011, alleges that Novartis provided kickbacks,

disguised as rebates or discounts, to approximately 20 pharmacies in return for the

pharmacies switching kidney transplant patients to Novartis’ drug from a competitor’s

drug and preventing patients from purchasing the cheaper generic equivalent.1

Amended Complaint and

Intervenor Complaints filed

April 26, 2013 U.S. ex rel. Bilotta v. Novartis Pharmaceuticals Corp., No. 11-71

(S.D.N.Y.)

The lawsuit, initiated in January 2011, alleges that Novartis provided kickbacks – including

speaking engagements that were allegedly more like “social occasions” and lavish

dinners – to induce physicians to prescribe the company’s pharmaceutical products.2

Pending MTD and motion to

stay discovery

May 2, 2013

May 10, 2013

May 31, 2013

U.S. ex rel. Gonzales v. Vitas Healthcare Corp., No. 13-344 (W.D. Mo.)

U.S. ex rel. Spottiswood v. Chemed Corp. f/d/b/a Vitas Hospice Services, et al., No.

13-505 (W.D. Mo.)

U.S. ex rel. Urick v. Vitas HME Solutions, et al., No. 13-563 (W.D. Mo.)

[Consolidated Action] United States v. Vitas Hospice Services LLC, No. 13-449

(W.D. Mo.)

These lawsuits, initially filed in August 2007 (Spottiswood), August 2008 (Urick) and

January 2012 (Gonzales), were all transferred to the U.S. District Court for the Western

District of Missouri and consolidated into one action after the government intervened

in each case in May 2013. The government alleges that Chemed and 18 of its Vitas

Healthcare Corp. subsidiaries engaged in a scheme to defraud Medicare by submitting

claims for hospice services that were not necessary, not actually provided, or not

performed in accordance with Medicare requirements.3

Pending MTD

June 10, 2013 U.S. ex rel. Denk v. PharMerica Corp., No.

09-720 (E.D. Wisc.)

U.S. ex rel. Beeders, et al. v. PharMerica Corp., No. 11-706 (E.D. Wisc.)

The Denk lawsuit, initiated in July 2009, alleges that PharMerica routinely dispensed

Schedule II controlled drugs in non-emergency situations before obtaining a written

prescription from a treating physician. The Denk action subsequently has been

consolidated with another FCA complaint filed against PharMerica by two relators

(Beeders).4

Pending MTD

July 8, 2013 U.S. ex rel. Heesch v. Diagnostic Physicians Group, P.C., IMC-Diagnostic and Medical Clinic, P.C., Infirmary Medical Clinics, P.C., Infirmary Health System, Inc., and IMC-Northside Clinic, No. 11-364 (S.D. Ala.)

The lawsuit, filed in July 2011, alleges that the IMC-Diagnostic and Medical Clinic

improperly paid physicians from the Diagnostic Physicians Group compensation that

included a percentage of the Medicare reimbursement for tests and procedures the

doctors referred to the clinic, in violation of the Stark Law and Anti-Kickback Statute.5

Pending MTD

AppeNdix B – iNterveNed cASeS (prior to SettLemeNt)

| 41


November 21, 2013 Edward Hamilton, M.D.;

Centennial Pediatrics

Edward Hamilton, M.D. entered into a settlement and plea agreement to resolve civil and criminal FCA allegations

that he billed – through Centennial Pediatrics – newborn hearing screenings and pediatric urinalysis as more

comprehensive tests when in fact they lacked the equipment necessary to perform the higher-billed tests.

Centennial Pediatrics joined the civil settlement. In total, to resolve the civil and criminal FCA allegations, Dr.

Hamilton and Centennial Pediatrics paid $1.6 million. Pursuant to the criminal plea and civil settlement, Hamilton

was excluded from participation in all federal healthcare programs for 20 years and required to divest himself of

ownership of Centennial Pediatrics.87

$1.6 million

November 22, 2013 Lymphedema & Wound Care

Institute of Texas Inc.

Lymphedema & Wound Care Institute and its affiliates agreed to pay $4.3 million to resolve FCA allegations that

it billed for physical therapy services provided by unqualified therapists and for pneumatic pumps that were

not medically necessary or sold to patients but never actually provided to them. Pursuant to the agreement,

the institute, which runs eight rehabilitation clinics in Texas, agreed to operate under a five-year CIA, and the

institute’s founder and CEO agreed to be barred from participating in federal healthcare programs for 10 years.88

$4.3 million

December 13, 2013 Ravi Sharma, M.D.; Premier

Vein Centers; Life’s New

Image

Ravi Sharma, M.D. and two Florida-based clinics owned and operated by Dr. Sharma agreed to pay $400,000

to resolve FCA allegations that they knowingly billed Medicare for vein injections and physician office visits

performed by unqualified personnel and for medically unnecessary procedures. As part of the settlement, Dr.

Sharma entered into a three-year CIA with HHS-OIG.89

$400,000

December 19, 2013 Elie H. Korban, M.D. Elie H. Korban, M.D., agreed to pay $1.15 million to resolve FCA allegations that he billed Medicare and Medicaid for

medically unnecessary cardiac stent procedures and for services performed by substitute doctors when he was

not able to perform the services himself. The qui tam lawsuit was originally brought against two West Tennessee

hospitals, their respective CEOs and a radiologist, in addition to Korban. The government intervened only as to

Korban. As a part of the agreement, Korban entered into a CIA with HHS-OIG.90

$1.15 million

December 23, 2013 Rural/Metro Corporation Rural/Metro Corporation agreed to pay more than $2.8 million to resolve FCA allegations that various ambulance

companies – owned and operated by Rural/Metro – billed Medicare for transporting patients from one hospital to

another on an emergency basis when the calls were

not actually emergencies.91

$2.802 million

1. http://www.justice.gov/usao/nys/pressreleases/April13/NovartisLawsuitPR.php; http://www.justice.gov/opa/pr/2013/April/13-civ-481.html.


3. http://www.justice.gov/opa/pr/2013/May/13-civ-500.html; http://www.law360.com/articles/475598/chemed-hospice-units-want-medicare-scam-suit-nixed.



| 42

DATE OF INTERVENTION


July 18, 2013 U.S. ex rel. Guthrie v. A Plus Home Health Care, Inc., et al., No. 12-60629

(S.D. Fla.)

The lawsuit, filed in April 2012, alleges that A Plus Home Health Care engaged in a

scheme to increase Medicare referrals by employing several physicians’ spouses and a

physician’s boyfriend for marketing purposes and generating sham personnel files for

them, while requiring them to perform little to no actual work.6

In discovery (MTDs denied;

answer filed)

October 24, 2013 U.S. ex rel. Renfree v. Brown Hand Center, et al. No. 10-527 (S.D. Tex.)

The United States intervened in the relator’s litigation, initiated in February 2010, as to

allegations that Brown Hand Center billed Medicare for improperly unbundled medical

services related to surgical procedures on the hand, and submitted duplicative claims or

claims for a higher level of services than was actually provided, based on the improper

use of CPT code modifiers. The United States declined to intervene in relator’s claims

against numerous co-defendants and claims that the defendants fraudulently billed

Medicaid.

Stayed pending Brown

Hand Center’s Chapter 11

bankruptcy proceeding

November 20, 2013 U.S. ex rel. Kurnik v. Omnicare, Inc., No.

11-1464 (D.S.C.)

The lawsuit, filed in June 2011, alleges that Omnicare and two other long-term

care pharmaceutical services companies accepted kickbacks from Amgen, Inc., a

biotechnology company, in return for their implementing programs designed to switch

Medicare and Medicaid beneficiaries from a competitor drug to one manufactured by

Amgen. The kickbacks consisted of performance-based rebates tied to market-share or

volume thresholds. The government intervened only as to Omnicare. It previously settled

with Amgen in April 2013.7

Intervened for purpose of

settlement; parties have until

February 10, 2014 to finalize

settlement agreement and

obtain necessary approvals

December 3, 2013 U.S. ex rel. Oughatiyan v. IPC Hospitalist Company Inc., et al., No. 09-5418 (N.D.

Ill.)

The lawsuit, initiated in September 2009 against IPC and its subsidiaries in 24 states,

alleges that IPC physicians sought payment for higher and more expensive levels of

medical service than were actually performed. Specifically, the lawsuit alleges that IPC

encouraged “upcoding” by training new physicians to utilize higher level codes, through

its physician compensation structure, and by monitoring programs that identified

physicians who needed to “catch up” to their peers.8

Government has until

March 2, 2014 to serve its

complaint on the defendants

December 16, 2013 U.S. ex rel. Nurkin v. Health Management Associates, Inc., et al., No. 11-14 (M.D.

Fla.)

The lawsuit, initiated in January 2011, alleges that HMA and two HMA-owned hospitals

engaged in a kickback scheme with a local physicians’ group in exchange for patient

referrals and hospital admissions. The alleged kickbacks came in the form of free office

space, equipment, staff, and direct monthly expense payments.9

Stayed pending MDL transfer

ruling

December 16, 2013 U.S. ex rel. Brummer v. Health Management Associates, Inc., et al., No.

09-135 (M.D. Ga.)

The United States intervened in the relator’s litigation, initiated in November 2009, as

to allegations that HMA and two HMA-owned hospitals billed for inpatient services that

should have been billed as outpatient or observation services by pressuring hospitalists

and emergency department contract groups into admitting a certain percentage of

patients. The United States declined to intervene as to relator’s allegations regarding

unnecessary lab testing in the Emergency Department.10


ruling


7. Bloomberg BNA Health Law Resource Center, http://healthlawrc.bna.com/hlrc.


9. http://www.justice.gov/opa/pr/2014/January/14-civ-037.html; http://www.law360.com/articles/497772.




December 16, 2013 U.S. ex rel. Williams v. Health Management Associates, Inc., et al., No.

12-151 (M.D. Ga.)

The lawsuit, initiated in December 2012, alleges that HMA and its subsidiaries billed

Medicare and Medicaid for inpatient services that should have been billed as outpatient

or observation services.11


ruling

December 16, 2013 U.S. ex rel. Paul Meyer v. Health Management Associates, Inc., et al., No.

11-62445 (S.D. Fla.)

The lawsuit, initiated in November 2011, alleges that HMA implemented a nationwide

strategy to increase Medicare payments by HMA-owned hospitals (1) maintaining

improper financial relationships with, and making improper payments to, physicians, in

violation of the Stark Law and Anti-Kickback Statute, and (2) billing for inpatient services

that should have been billed as outpatient or observation services. Twenty-two HMA-

owned hospitals across eight states are named as co-defendants.12


ruling

December 16, 2013 U.S. ex rel. Plantz v. Health Management Associates, et al., No. 13-1212 (N.D. Ill.)

The United States intervened in the relator’s litigation, initiated in February 2013, as to

allegations that HMA and 50 HMA-owned hospitals caused false claims to be submitted to

federal healthcare programs for patients admitted through the Emergency Department

that should have been placed in observation or outpatient status, or discharged, and

as a result of providing kickbacks to Emergency Department physicians and physician

groups in order to improve metrics and benchmarks related to inpatient admissions, in

violation of the Anti-Kickback Statute. The United States declined to intervene as to

relator’s allegations regarding unnecessary testing on patients, and inflating the acuity of

patients, in the Emergency Department. The United States declined to intervene against

Defendant ProMed Clinical Systems, LLC.13


ruling

December 16, 2013 U.S. ex rel. Miller, et al. v. Health Management Associates, et al., No. 10-

3007 (E.D. Pa.)

The United States intervened in relators’ litigation, initiated in June 2010, against HMA

and two HMA-owned hospitals. The complaint in this action remains under seal. The

United States has been granted additional time to decide whether to intervene as to

Defendant Physicians Alliance Ltd.14


ruling; the United States

has been granted additional

time to decide whether to

intervene as to Defendant

Physicians Alliance Ltd.

December 16, 2013 U.S. ex rel. Mason, et al. v. Health Management Associates, et al., No. 10-

472 (W.D.N.C.)

The United States intervened in the relators’ litigation, initiated in September 2010, as to

allegations that HMA and two HMA-owned hospitals caused false claims to be submitted

to federal healthcare programs for patients admitted through the Emergency Department

that should have been placed in observation or outpatient status, or discharged, and as a

result of providing kickbacks to Emergency Department physicians and physician groups

in order to improve metrics and benchmarks related to inpatient admissions, in violation

of the Anti-Kickback Statute. The United States declined to intervene as to relator’s

allegations regarding unnecessary testing on patients, and inflating the acuity of patients,

in the Emergency Department.15





intervene as to Defendants

Emergency Medical

Services Corp.; EmCare Inc.;

EmCare Holdings, Inc.; and

Emergency Medical Services,

L.P.

| 43








December 16, 2013 U.S. ex rel. Jacqueline Meyer, et al. v. Health Management Associates, Newsome, et al., No. 11-1713 (D.S.C.)

The United States intervened in the relators’ litigation, initiated in July 2011, as to

allegations that HMA and former HMA CEO Gary Newsome caused false claims to be

submitted to federal healthcare programs for patients admitted through the Emergency

Department that should have been placed in observation or outpatient status, or

discharged, and as a result of providing kickbacks to Emergency Department physicians

and physician groups in order to improve metrics and benchmarks related to inpatient

admissions, in violation of the Anti-Kickback Statute. The United States declined to

intervene as to relator’s allegations regarding unnecessary testing on patients in the

Emergency Department. 16





intervene as to Defendants

Emergency Medical Services

Corp. and EmCare, Inc.


| 44

Brian d. roarkMember

615.742.7753 teL

[email protected]

matthew m. curleyMember

615.742.7790 teL

[email protected]

Anna m. grizzleMember

615.742.7732 teL

[email protected]

John e. kellyMember

202.827.2953 teL

[email protected]

wallace w. dietzMember

615.742.6276 teL

[email protected]

The Bass, Berry & Sims Healthcare Fraud Task Force represents healthcare

providers in connection with fraud and abuse matters, including responding to

governmental inquiries by the U.S. DOJ and U.S. Attorneys’ Offices, the Office

of Inspector General of the U.S. Department of Health and Human Services,

federal program safeguard contractors, and various states’ Attorneys General

offices. We have a track record of successfully representing providers in

related FCA litigation, including multiple declinations and dismissals in FCA

qui tam cases in 2013 alone. We routinely counsel healthcare providers on

implementing state-of-the-art compliance programs and assist clients in

navigating self-disclosure and other compliance-related projects.

The firm’s healthcare fraud and abuse practice is led by former members

of the U.S. DOJ and a number of former Assistant U.S. Attorneys with

significant experience handling healthcare fraud matters. Our attorneys

are frequent speakers on healthcare fraud and abuse topics and two of our

members serve as Adjunct Professors of Law at Vanderbilt University Law

School teaching Health Care Fraud and Abuse. For more information, please

visit our website at http://www.bassberry.com/healthcare-fraud.

ABoUt BASS, Berry & SimS pLc

| 45

Healthcare Fraud and Abuse Review 2013

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